Economic Substance Regulations (ESR) Inspections & Penalties

The Federal Tax Authority (FTA) is currently carrying out targeted inspections of Economic Substance reports filed by UAE businesses. Any errors or omissions discovered during these inspections can lead to penalties for the taxpayer concerned.

If a business is selected for an inspection by the FTA, it will be required to produce documents and other evidence to support its ESR filings within a strict timescale. It is essential therefore that businesses are confident in the filings they have made and that all of the supporting documentation is available and easily accessible. BDO UAE is able to provide a pre-inspection review service to assist you if you have concerns with any of these matters.  

The ESR penalties can be severe, and they act as a reminder of the importance of making accurate and properly considered ESR notifications and reports. A penalty can be appealed but there is a detailed process and a strict timetable that must be followed. It is therefore important that businesses act quickly if they receive a penalty assessment.

Appeals can be made on the following grounds:

• The company did not commit the violation
• The administrative penalty imposed is not proportionate to the violation
• The administrative penalty imposed exceeds the limits under the ESR laws

If you have any concerns or questions about the ESR or if you have received a penalty, please contact any member of the BDO UAE tax team. We offer a full range of ESR services, including filing assistance, pre-filing assessments, pre-inspection reviews, and advice and support in connection with the penalty appeal process.