The Economic Substance Regulations were issued according to the standards set by the Organization for Economic Cooperation and Development (OECD), as well as by the European Union Code of Conduct Group (EU COCG), on 30 April 2019. The assistance on the application of the ESR was brought forward on 11 September 2019. However, the new regulations were proposed by Cabinet of Ministers Resolution Number 57 of 2020 on 10 August 2020, and the assistance for the new Economic Substance Regulations were issued on 19 August 2020.
The Economic Substance Regulations applies in Ras Al Khaimah Economic Zone and requires the Licensee and Exempted Licensee to carry on the respective Relevant Activities in order to meet the economic substance Requirements in the United Arab Emirates. ESR in RAKEZ requires the businesses to comply with the obligations of filing ESR Notifications to the Relevant Regulatory Authority within the prescribed due date. The filing of notification for ESR in RAKEZ is a declaration by the Licensees or Exempted Licensees themselves that in what way they are carrying out Core Income Generating Activities in the UAE. Thus, filing of Economic Substance Regulations Notification for RAKEZ Companies requires the Licensee and Exempted Licensee to:
- Meet the requirements of Economic Substance Regulations in UAE.
- Submit ESR Return to the RAKEZ.
All the Businesses in Ras Al Khaimah Economic Zone that carries out Core Income Generating Activities are required to submit an ESR Notification form electronically on the Ministry of Finance’ new portal , and the businesses that carry out their respective Relevant Activities, that has already filed an ESR Notification form to the RAKEZ Authority, should undergo re-submission of ESR Notification Form once it is available on the portal. The ESR Notifications forms must be submitted to the respective Regulatory Authority within six months of the end of the financial Year of the Business Relevant Activity.
The Economic Substance Regulations commences on or from 1 January 2019. Thus, for meeting the requirements of ESR in RAKEZ the following requirements of ESR should be met:
- The Licensee and Exempted Licensee should provide information about the Relevant Activity that is being carried on by the Business in UAE for submitting the ESR Notification.
- The information about the gross income of the business from the Core Income Generating Activities that are being taxed outside the jurisdiction of UAE should also be provided.
- The provision of the end date of the financial year of the Relevant Activity of by the respective business.
Moreover, it should be kept under consideration that a financial period in which a business in RAKEZ has not earned its gross income from a Relevant Activity or if it met the status of exemption, is not required to meet the requirements of Economic Substance Test and should not submit an Economic Substance Report. However, filing of ESR Notifications in RAKEZ is required to be submitted regardless.
The businesses that have achieved the status of exemption and are still required to submit ESR Notification Form in Ras Al Khaimah Economic Zone includes;
- An investment fund
- An applicant who is a tax tenant in a state other than the United Arab Emirates
- An organization completely owned by the citizens of the UAE keeping in view that the Exempted Licensee is not part of any Multinational Corporation and has organization only in the UAE
- Branch of a foreign organization whose revenue is to subject tax outside the United Arab Emirates
For meeting the requirements of filing ESR Notification, an ESR Return should be submitted within 12 months of the end of the relevant financial year. For submission of ESR Return information about Core Income Generating Activity, gross income, costs, and physical assets of the Business should be provided. However, the Corporate businesses are required to file separate ESR Returns as submission of integrated ESR Report is not valid.
Moreover, it should be kept under consideration that a financial period in which a business in RAKEZ has not earned its gross income from a Relevant Activity or if it met the status of exemption, the Businesses in RAKEZ are not required to meet the requirement of filing ESR Return.
Filing an ESR notification in Ras Al Khaimah Economic Zone requires professional assistance to avoid the possibilities of errors. Otherwise, failure of compliance with Economic Substance Regulations in RAKEZ can result in imposition of penalties that lies within the range of AED 10,000 to AED 50,000, exchange of information with the Foreign Competent Authority in accordance with Article 1 of Ministerial Decision 57 of 2020 of Economic Substance Regulations, as well as imposition of sanctions such as the suspension, revocation or unable to renew the license of the Licensee.