Penalties for Failure to Comply with Economic Substance Regulation, UAE
The Cabinet Resolution No. 57 of 2020 established administrative fines for numerous Economic Substance Regulations infractions (ESR). The number of fines for infractions committed by both Licensees and Exempted Licensees has grown as a result of the new resolution. The main breaches include giving false information, failing to submit an ESR report and notification, and failing to pass the UAE’s economic substance test.
The fine amount serves as a warning to companies to speak with knowledgeable ESR advisors in the UAE before sending in notifications and ESR Reports. The following list of Economic Substance Regulations administrative penalties should serve as a warning to businesses:
Criminal offenses and fines for failing to notify
According to Article 13 of Cabinet Resolution No. 57 of 2020 regarding economic substance requirements, a Licensee or Exempted Licensee who fails to submit an Economic substance regulations notification in the UAE is subject to pay an administrative penalty of AED 20,000. The National Assessing Authority will notify the entity of the penalty if it has determined that the entity has committed the offense.
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Failure to file an Economic Substance Report will result in penalties.
Entities that fail to submit the Economic Substance Regulations Report and any pertinent information or documentation required to be submitted in accordance with the provisions of the Cabinet Resolution No. 57 of 2020 concerning Economic Substance Requirements will be subject to an administrative penalty of AED 50,000 as per Article 14 of Cabinet Resolution No. 57 of 2020.
According to Article 14 of Cabinet Resolution No. 57 of 2020, if the company violates the same law in the financial year that immediately follows the financial year in which the breach was first committed, an administrative fine of AED 400,000 will be levied. It is better to get the guidance of the top ESR experts in Dubai because repeating the infractions results in greater financial loss in the form of penalties.
Failure to Pass the Economic Substance Test Can Lead to Penalties
Businesses operating in the UAE must pass the Economic Substance Test in order to engage in a Relevant Activity. However, as per Article 14 of Cabinet Resolution No. 57 of 2020 for the first year, failing to pass the Economic Substance Test for each financial year will result in a fine of AED 50,000. However, in accordance with Article 14 of Cabinet Resolution No. 57 of 2020, a repeat of the same infringement in the succeeding Financial Year will result in an administrative fine of AED 400,000.
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Administrative fine for submitting false information
Both Licensees and Exempted Licensees should take care to supply the Regulatory Authority with accurate information and appropriate documentation. According to Article 15 of Cabinet Resolution No. 57 of 2020, organizations who submit false information and fail to notify the error despite knowing about it shall be fined AED 50,000. Upon learning of the infraction, the National Assessing Authority will notify the entities of the fine.
The penalty notification’s contents
A notice will be given to the violators after the National Assessing Authority deems that a Licensee or Exempted Licensee has broken an ESR rule. The following information will be provided to violators by the Authority:
- The Licensee or the Exempted Licensee violated the law in the applicable financial year, according to the National Assessing Authority.
- Why the ESR administrative penalty was imposed
- The amount of the administrative fine levied against the organization
- The start date for the administrative penalty ( not less than 30 business days after the issue of notice)
- The ability to contest an administrative penalty
- A Licensee or an Exempted Licensee may appeal the administrative penalty imposed by the National Assessing Authority in accordance with Article 17 of the Cabinet Resolution 57 of 2020.
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The following grounds may be used in support of the appeal:
- The organization has not violated the rule.
- The fine imposed is out of proportion to the offense
- The Authority’s punishment is higher than the ceiling outlined in the Resolution.
The process for filing an appeal against Economic Substance Regulations fines in the UAE will be outlined in a decision issued by the National Assessing Authority. The resolution will outline the procedure for submitting an appeal as well as additional steps for reviewing a penalty and making an appeals determination.
How Can KGRN Aid in Your Avoidance of ESR Sanctions?
Businesses that fall within the categories of licensees and exempt licensees ought to be cautious due to the severe administrative fines associated with Economic substance regulation, UAE. The main offenses that result in fines under ESR in UAE include failure to submit an ESR notification or report, failure to pass the Economic Substance Test, and providing incorrect information.
Businesses should attempt to avoid penalties in the first place rather than filing an appeal after they have been incurred, given the severity of the penalty. The best option for avoiding fines is to consult with the top ESR experts in the UAE, like KGRN Chartered Accountants.
KGRN employs highly skilled auditors and business setup experts that are well-versed in the ESR regulations. KGRN helps the businesses comply with the Economic Substance Regulation UAE so they can avoid penalties and other sanctions. KGRN assists businesses by determining whether they can pass the UAE Economic Substance Test, making recommendations if they do not pass the test, and assisting them in accurately submitting their yearly ESR Notification and ESR Reports.
For enquires call @ +971 45 570 204 / Email Us : [email protected]
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