UAE ESR Update – Economic Substance Regulations Appeal User Guide
With the issuance of the new Cabinet Resolution No. 57 of 2020 concerning Economic Substance Requirements (“Regulations”) on 10 August 2020, the Federal Tax Authority (“the FTA”) was appointed as the National Assessing Authority.
The FTA’s functions include, without limitation: (i) undertaking assessments to determine whether a Licensee has met the Economic Substance Test; (ii) imposing administrative penalties where applicable; and (iii) hearing and deciding on appeals.
The FTA now has a dedicated e-mail and section on its website for ESR. Additionally, FTA has released the Economic Substance Regulations Appeal User Guide (“the Guide”) on how and when to appeal against decisions of Economic Substance Regulations administrative penalties issued to Licensee or Exempted Licensees.
Key takeaways from the user guide:
When are you eligible for an appeal?
The Licensee or the Exempted Licensee may appeal to the FTA in any of the following cases:
- It did not commit the violation attributed to it;
- The administrative penalty imposed is not proportionate to the violation;
- The administrative penalty imposed exceeds the limited prescribed hereunder.
How to apply for an appeal?
Since all submittals of ESR Notifications and ES Reports are done through the Ministry of Finance (“the MOF”) portal, Licensees and Exempted Licensees must log in to their existing accounts on the MOF portal to submit the appeal.
For each administrative penalty, the appeal must be submitted separately.
What are deadlines?
It must be noted that the deadline for submitting the appeal and paying the penalty is 40 working days from the date on which such administrative penalty is levied.
The calculation of the payment deadline stops upon submitting the appeal request, and it will be resumed if the appeal request is rejected or withdrawn partly. If the appeal is approved in full, the deadline will not be resumed.
The FTA must decide on the submitted appeal within 40 working days and inform the applicant of the decision within 5 working days from the date of issuance of the decision.
Providing supporting documents when requested by the FTA
As per the new Regulations, the FTA, in co-operation with the Regulatory Authorities, has the discretion to request additional information, documents, and records required in their performance of their duties under the Regulations.
In this case, the applicant must provide the required information/documentation within 5 working days from the date of such request; otherwise, the appeal might be rejected.
The timeframe for the FTA’s review extends for further 40 working days upon receiving the additional required documents. The applicant shall be notified within 5 working days from the issuance of the decision.
Penalties and timeframe for imposing
In addition to exchanging information with foreign authorities, the following penalties may be imposed by the FTA:
- Failure to file the ESR Notification within 6 months from the end of the financial year – AED 20,000.
- Failure to file the ES Report within 12 months from the end of the financial year – AED 50,000.
- Failure to meet the Economic Substance Test – AED 50,000.
- Repeatedly committed one of the two violations mentioned in points 2 and/or 3 during the following financial year – AED 400,000
The said penalties can be imposed within 6 years from the date of committing the violation, unless the Licensee or the Exempted Licensee committed a fraudulent act that resulted in inability of the the FTA to impose the said penalties within the stipulated period.
- Providing inaccurate information – AED 50,000.
A penalty for this violation might be imposed within 12 months from the date on which the FTA became aware of the violation unless the Licensee or the Exempted Licensee committed a fraudulent act which resulted in the inability of the the FTA to impose the said penalties within the stipulated period.
Additional penalties such as suspending, revoking, or not renewing the Licensee’s or Exempted Licensee’s trade license could also apply.
Dedicated ESR e-mail
The applicant can follow up on the appeal by sending the e-mail with the legal name of the Licensee or Exempted Licensee, the name of the Regulatory Authority, and the Case ID to: FTAESR@tax.gov.ae.
For any technical issues related to the ESR Portal (for example, esr Notification not appearing on the Licensee’s dashboard, problems with submitting requests, etc.), e-mails should be sent to ESRsupport@cbrain.com.
How can we help?
We strongly recommend that all entities falling within the scope of ESR review their governance arrangement and put in place all necessary measures to comply with the ESR requirements. Non-compliant practices should be remediated.
If the penalty on ESR is raised without any violation, or it is not proportionate to the violation, or it exceeds the limitation, we recommend submitting an appeal without further delay.
Our team is here to guide you through the Regulations and ensure full compliance therewith.
PARTNER & DIRECTOR OF ACCOUNTING & CFO SERVICES
Associate Director (Indirect Tax)