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Effect Of ESR On Business Practices In The UAE

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The United Arab Emirates (UAE), along with its opportunity-laden free zones, has been the most sought-after business destination for the past decade. Being the world’s transit destination, UAE has unmatched economic benefits for small and large businesses. However, with great opportunities come immense risks. The greatest ones for the Federal Government are fraudulent and illegal activities and business malpractice. To prevent any such incident and ensure fair business practices, the government of the UAE introduced the Economic Substance Regulation in 2019. The regulation encompasses finance, banking, shipping, distribution, lease, property, and more.

Requirements of the Economic Substance Regulation

According to the regulation, every business of the relevant activity must file an Economic Substance Report at the end of their fiscal year. Failure to comply with the rule may result in heavy penalties, suspension, or revocation of the business’s trade license.

In a nutshell, every relevant business shall submit a report that outlines its revenues, cost, office staff, and office location. In addition, they must provide information that proves their operations and income-generating activities within the UAE.

Effect of Economic Substance Regulation on Businesses

Interestingly, the Economic Substance Regulation targets businesses most vulnerable to malpractice. The regulation has several benefits in aligning businesses to the laws and guaranteeing better business practices.

Systematic and Well-timed Business Report

More responsibility and the threat of possible penalties will direct businesses to submit regular reports to the authorities. Since these reports mention details of a business’s revenues and profits, Authorities will know the source of the business’s earnings and consequently be able to identify whether the business is earning through legal practices or not. Additionally, the submission of a regular report will keep businesses aligned to the government’s economic policies.

Tax Information

Providing accurate sources of income means paying legit taxes. Any inconsistencies in sources of income will influence the taxes paid by a business. While this will streamline the business’s income source, it will also bring into line the taxation system accordingly, eliminating any possibility of tax evasion.

Looming Fear of Company Liquidation

Failure to comply with the regulations or submitting incorrect information may result in the liquidation of the company. That may have economic consequences, but it will have direct and severe impacts on the business itself. The looming danger of such a possibility ensures additional attention and care while compiling and submitting the ESR report.

Staff and Office Information

The ESR requires businesses to present details of employees and their physical presence in the office, which have to be a physical location. Although it may seem irrelevant, a significant clause ensures fair and legit business opportunities. The need for an office staff physically present in the UAE means employment opportunities for millions of people there. It also makes sure the government funds are allocated to its citizens and not laundered to people outside the UAE.

Fair Business Practices

With information as detailed as peeking through a window into the business, chances of malpractice narrow down to nil. Accountability ensures that all sectors of the relevant activity employ fair practices to generate revenues and earn profits, and paves way for healthy competition. It also ensures that there are no illegal practices to gain profit, sell goods or provide service.

Conclusion

The clauses of the Economic Substance Regulation are stringent to ensure transparency and compliance. The Ministry of Finance encourages businesses to seek professional help in compiling and submission of ESR reports. To prevent misinformation or delays in submission, it is necessary to seek assistance from only the professional and renowned accounting firms that have extensive knowledge in the said field.

Bader Saleh Auditing of Accounts is compliant with all ESR-related activities. The skilled professionals are well aware of the laws of the Economic Substance Regulation and provide the best advice and assistance. Book your consultation today:

• Office # 0641, Tamani Arts Offices, Business Bay, P.O. Box 111390, Dubai, UAE

• +971 4 570 7357

• +971 58 108 5690

• info@bsauditing.com

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