Who are the Regulatory Authorities in Economic Substance Regulations?
On 30 April 2019, the ESR in UAE was issued in accordance with the Cabinet of Ministers Resolution Number 31 of 2019. Moreover, assistance for the application of ESR was also proposed on 11 September 2019 in accordance with the Ministerial Decision Number 215 of 2019. ESR in UAE was amended on 10 August 2020 by Cabinet of Ministers Resolution Number 57 of 2020, and the assistance for the application of those amended Economic Substance Regulations were issued on 19 August 2020 by Cabinet of Ministers Resolution Number 100 of 2020. ESR in UAE maintains and illustrates the economic presence of onshore and free zone companies who practice the “Relevant Activities” relative to the Economic Substance Test in United Arab Emirates.
The Regulatory Authorities in Economic Substance Regulations are the authorities who are responsible for the implementation of the provisions of the ESR in UAE. The Cabinet of Ministers of United Arab Emirates assigned the Regulatory Authorities who have enough power to implement, monitor as well as enforce the provisions of ESR in UAE respective to each Relevant Activity.
According to Economic Substance Regulations, the Regulatory Authorities are the ones who undergoes receiving, assembling, reviewing, holding, storing and distributing all the required documents, records and any additional information that are to be submitted from time to time by the Licensees and Exempted Licensees as stipulated under Economic Substance Requirements. Moreover, the Regulatory Authorities in Economic Substance Regulations guarantees that the submission of all the required documents, records and any additional information by the Licensees and Exempted Licensees was under their jurisdiction.
Under Cabinet of Ministers Resolution Number 57 of 2020, the Regulatory Authorities in Economic Substance Regulations includes :
- Financial Free Zone Authority and the Central Bank that regulates the Relevant Activity of Banking Business.
- Insurance Authority, Free Zone Authority and the Financial Free Zone Authority that controls the Insurance business.
- The Relevant Activity of Investment Fund Management business is regulated by the Securities and Commodities Authority, Free Zone Authority and the Financial Free Zone Authority.
- The Central Bank, Free Zone Authority and the Financial Free Zone Authority are appointed as to control the Lease-Finance business.
- The Relevant Activities of Headquarters business, Shipping business, Holding Company business, Intellectual Property business and Distribution and Service Centers business are controlled by the Regulatory Authorities which includes the Ministry of Economy, Free Zone Authority and Financial Free Zone Authority.
Article 4 of Cabinet of Ministers Resolution Number 57 of 2020 clearly identifies that the Regulatory Authorities in Economic Substance Regulations are the ones who receive the ESR Notifications and ESR Reports that are submitted by the Licensees and Exempted Licensees. They gathers all the relevant information and supporting documents that are required from the Licensees and Exempted Licensees under Economic Substance Requirements and then reviews the ESR Notifications, ESR Reports and supporting documents that are attached to provide evidence for the accuracy of the information provided by the applicants.
The Regulatory Authorities in Economic Substance Regulations are the authorities who are responsible for reporting all the information that is received by them to the National Assessing Authority or any other authority under Federal Tax Authority. ESR in UAE also assigns the Regulatory Authorities to carry out any function that is necessary for the implementation of the provisions of the Economic Substance Regulations. Moreover, when a Licensees or Exempted Licensees do not submit the additional information that is required under the Economic Substance Regulations to the Regulatory Authorities, then that respective Regulatory Authority should immediately send a notification to the National Assessing Authority about the problem.
Keeping under consideration the ESR Notifications and additional information that is to be submitted under ESR in UAE by Exempted Licensees, the Regulatory Authorities are the one who reviews the received information from the Exempted Licensee in order to verify that the Exempted Licensee has provided enough evidence to prove their exempted status. After verification the Regulatory Authorities must inform the National Assessing Authority about the determination of Exempted Licensees’ status.
Moreover, the Regulatory Authorities must keep it under view that any Licensee and Exempted Licensee who failed to provide the required documents, records and any additional information in accordance with the Economic Substance Requirements, or if the required documents, records and the additional information are inaccurate or incomplete after reviewing. Under these circumstances:
- The Regulatory Authorities may send a notice to the Licensee and Exempted Licensee in which they ask for distributing all the required documents, records and any additional information that are to be submitted under the Economic Substance Requirements
- Or else, the Regulatory Authorities may enter the premises of Licensee and Exempted Licensee for the purpose of acquiring the required documents, records and additional information.
