Is ESR still applicable in UAE?
The ES regulations have been amended whereby the scope has been restricted only to FYs commencing from 1 January 2019 until FY ending on 31 December 2022. However, the Federal Tax Authority (‘FTA’) have been conducting ESR Audits lately for the earlier periods, since they have powers to initiate audit within a period of 6 years.
Based on our experience, we have summarized some of the key challenges being faced by the businesses during such audit
1. Collation of Information/ documentation requirements for ES substance test
Exhaustive documentation/ information is being asked along with the detailed questionnaire with various business details. Some of the key documents/ information being sought is summarized below:
- CVs of the Directors and full-time equivalent employees (FTEs)
- Attendance and salary record of FTEs
- Detail of assets including office space including purchase invoice of assets, copy of title deed or lease deed of office space
- Minutes of board meetings conducted in the UAE with proof that all the directors were physically available in the UAE for the meetings
- Copy of agreement with customer for the income streams from the relevant activities along with order and invoice copies
- Copies of loan agreement and bank statements
Up on submission of the required details, the ESR auditor may ask for additional information which needs to be submitted within the stipulated timeline.
2. VAT Questionnaire
While the VAT details of the licensee does not have co-relation with the ES regulations, the FTA has been asking to provide a detailed VAT questionnaire providing details of supplies with categorisation under different rate slabs, details of credit being claimed, details of customer location, deemed supplies, reverse charge transactions, etc.
3. Timeline for submission of details
Auditor allows only 5 working days for submission of required information/document and arranging the required details for an old period is challenging. However, the licensee can request an extension from the auditor for submitting the required details, which will be subject to the auditor’s discretion and approval.
Consequence of failure to meet ES substance
Failure to meet ES substance will attract a penalty of AED 50,000 which can go further up to AED 400,000 in the case of repetition. Further, the ESR non-compliance can lead to cancellation of the trade license of the Licensee as well.
Need assistance on ESR Audit?
Please reach out to us on info@reina-consulting.com to sail through your ESR audit smoothly.