The UAE ushered in the New Year with a dazzling display of resolve, commitment and hope. And on New Year’s Eve, businesses also celebrated the one-month extension given them to be Economic Substance Regulations (ESR) compliant.

The ESR Notification and the ESR Report were earlier due on December 31, 2020 and can now be submitted on or before January 31. The extension given is not just a proactive step but a big relief for businesses for many reasons.

A rush jobs

Having submitted ESR notifications in June last, many businesses didn’t realize that the scope of ESR was thoroughly amended in September. They were thus caught in a sudden year-end rush for the compliance resulting in unreasonable advisory costs and arbitrary data calculations.

Businesses should make the best use of the one-month extension to examine the ESR implications and undertake compliance works accordingly.

Amendments

Businesses that have already submitted the Notification and/or ESR Report have an option to amend the submission to correct any errors. Such corrections should ideally not result in financial penalties.

Coordination

As ESR covers multinational groups for many transactions, the personnel in the UAE faced a particular dilemma as overseas colleagues were on vacation during Christmas/New Year. The information in the ESR Report are critical for the authorities to determine whether the ESR tests has been met. The data used should be correctly calculated and explained in the report.

Seeking clarity

Businesses would also look up to the authorities for clarity on various issues. The ‘directed and managed’ test has been through an intense debate. Official guidance states that an adequate number of board meetings must be held and attended in the UAE.

Further, the board members (or equivalent) must be physically present in the UAE when taking strategic decisions.

Clarification is required on the meaning of ‘strategic decision’ in scenarios where no board meetings were held throughout the reportable period and/or where no strategic decisions were taken if such meetings were held outside the UAE.

The Economic Substance Regulations have fairly significant financial and global implications. The one-month extension is one of the rare opportunities for businesses to start over one more time to ensure accurate compliance…

News Courtesy : Gulf News

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