All local business entities, including those in the free zones who engage in any one or more of the defined related activities in the UAE, must provide an economic substance regulation (ESR) notification to the regulatory authorities comprising their preliminary activity reports.
Despite implementing ESR directions and completing the relevant documents with regulatory agencies for ESR notification and reporting, the UAE Ministry of Finance (MoF) has sent penalty emails to several local business firms.
If the MoF has sent you a penalty ticket for ESR non-compliance, you can opt for an appeal as per the Cabinet Resolution No 57 of 2020.
If you do not know how to proceed with the appeal, be guided by this post on ESR appeal filing assistance.
ESR Non-Compliance - Penalties
Along with exchanging information with the foreign authorities, the Federal Tax Authority (FTA) imposes the following penalties:
01. The penalty as per Section 13 is AED 20,000 for all the local businesses that did not file their ESR Notification within six months from the financial year-end.
02. As per Section 4, the defaulting business entities must pay AED 50 000 for the below mentioned two violations:
a. When a business fails to file ESR within a year or 12 months from the financial year-end
b. The ESR is incomplete and is not in compliance with ESR reporting standards.
If the defaulting business repeats the error the following year, the penalty is AED 400 000.
The FTA may impose the abovementioned penalties within six months from the violation's discovery date. The business may escape the liability if the FTA does not charge the fine within the timeframe.
03. The violations under Section 15 incur a penalty of AED 50,000 and has two sections:
a. Submission of inaccurate report
b. The failure to report the inaccuracy to the National Assessing Authority by the person responsible for the report at the discovery of the inaccuracy after submission
The FTA imposes a penalty on the defaulting licensee or exempted licensee within 12 months from violation discovery unless the FTA fails in imposing the penalty because of the licensee's fraudulent act.
04. Non-Financial penalties such as non-renewal or revoking of license or exempted trade license.
When can a Business Submit an Appeal?
As per the resolution of the Cabinet No. 57(2020) Article 17, a licensed or exempted trade license holder can appeal to the MoF portal against the ESR penalty only if:
- The business is not guilty of the violation
- The imposition of a fine is disproportionate to the offense
- The penalty exceeds the prescribed limits
How to Appeal an ESR Penalty in the UAE?
- Log in to the MoF portal by using your registered login credentials
- Check the dashboard for a detailed guide for the submission of the appeal. You will also find the deadline for the submission.
- Select 'Appeal' on the dashboard and find the deadline next to it.
Read more on How to file an appeal for an ESR penalty
Conclusion
The business must resort to immediate action by submitting an appeal on receiving the penalty ticket. The deadline for submitting the appeal is generally 40 days from receiving the penalty ticket, and you cannot appeal after the deadline passing.
If you successfully appeal against the ESR penalty, the deadline to pay the penalty becomes irrelevant. However, if the FTA rejects the ESR penalty appeal or the licensee withdraws, the FTA readjusts the days for a penalty payment.
ESR Appeal Filing Assistance from FlyingColour Tax
Flyingcolour can assist with all formalities concerning error-free filing and submission of ESR notifications and help you file your ESR submissions on your own and incur penalties by assisting you in the appeal process. Book your free consultation with us to know more about the comprehensive services.
To learn more about ESR Appeal Filing Assistance, book a free consultation with one of the Flyingcolour team advisors, simply call +971 4 4542366 or send WhatsApp messages to +971 554413566. you can also drop an email to info (at) flyingcolour (dot) com.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.