The Economic Substance Regulations were published according to the Organization for Economic Cooperation and Development’s (OECD) standards, as well as the European Union Code of Conduct Group’s (EU COCG) standards, on 30 April 2019. The 11th September 2019 was the date for the introduction of assistance in the application of ESR. The new regulations were however, proposed by Cabinet of Ministers Resolution Number 57 of 2019 on 10 August 2020. The assistance for the Economic Substance Regulations was issued on 19 August 2020.
Ras Al Khaimah Economic Area has the Economic Substance Regulations. It requires both the Exempted Licensee and the Licensee to perform the relevant activities in order to satisfy the economic substance requirements in the United Arab Emirates. ESR in RAKEZ calls for businesses to follow the requirements of filing ESR Notifications at the Relevant Regulatory Authority by the due date. Notification for ESR in RAKEZ requires Licensees and Exempted Licensors to declare that they are performing Core Income Generating Activities within the UAE. The Economic Substance Regulations Notice for RAKEZ Businesses requires both the Licensee or Exempted Licensor to:
You must meet the requirements of the Economic Substance Regulations (UAE).
Send an ESR Return to RAKEZ
All businesses in Ras Al Khaimah Economic Zone who carry out Core Income Generating activities must submit an ESR notification form electronically to the Ministry of Finance’s new portal. Businesses that have already submitted an ESR Notice form to the RAKEZ Authority should submit the ESR Form again once it becomes available on the portal. Within six months of the close of the Financial Year of the Business Relevant Activities, the ESR Notifications forms should be submitted to the relevant Regulatory Authority.
The Economic Substance Regulations will be effective as of January 2019. These are the requirements for ESR in RAKEZ.
For submission of the ESR Notification, the Licensee and Exempted Licensor should give information on the Relevant Activity being conducted by the Business in UAE.
It is also important to provide information regarding the gross income of the business from Core Income Generating activities that are not subject to UAE tax.
The end date for the relevant activity of the business.
It is important to remember that an economic substance report should not be submitted for a period in which a business has not received its gross income from Relevant Activities or met exemption requirements. However, ESR Notifications must be filed in RAKEZ.
Businesses that have been granted exemption are still required submit an ESR Notification form in Ras Al Khaimah Economic Zone.
An investment fund
A tax tenant applicant in another state than the United Arab Emirates
A UAE-owned organization, whose members are UAE citizens.
A branch of a foreign organisation whose income is to be subject to tax outside the United Arab Emirates
ESR Returns must be filed within 12 months from the end of each financial year to meet the requirements for filing ESR Notification. ESR Return submission information should include details about Core Income Generating Activities, Gross Income, Costs, and Physical Assets of the Business. The Corporate business must file their own ESR Returns. An integrated ESR Report is invalid.
It is important to remember that businesses in RAKEZ who have not made their gross income from Relevant Activities or met exemption status are not required by law to file an ESR Return.
To avoid errors, professional assistance is required to file an ESR notification in Ras Al Khaimah Economic Zone. Failure to comply with Economic Substance Regulations (RAKEZ) can lead to penalties ranging from AED 10,000 to 50,000. There is also the possibility of exchange of information with Foreign Competent Authorities in accordance to Article 1 of Ministerial Decree 57 of 2020. Sanctions include suspension, revocation, or inability to renew the Licensee’s license.