Economic Substance Regulations (ESR), a company specializing in electronic document management (EDM), recently announced the launch of its ESR Filing software in JAFZA, one of the world’s leading free trade zones. The new software will allow businesses operating in JAFZA to manage and store their documents electronically with ease. This announcement comes at a time when JAFZA is looking to invest further in digital technologies and innovation.
Did you know that companies registered in the Jebel Ali Free Zone (JAFZA) can file their annual returns electronically through the JAFZA E-Return Service? This year, JAFZA is making it even easier for companies to file their returns, with a new online portal that allows users to submit and track their filings. The portal also provides status updates on the review process and enables users to generate automated notifications of filing completeness.
Background of Economic Substance Regulations in UAE
The UAE Government introduced the Economic Substance Regulations (ESR) in April 2019, with the intention of aligning the country’s corporate tax regime with international standards set by the OECD. The ESR requires companies carrying out certain Relevant Activities to demonstrate adequate economic substance within the UAE and comply with various reporting and disclosure requirements. The jurisdiction of Dubai has its own rules, which are applicable to entities registered in one of its free zones, including JAFZA.
Economic Substance Regulations in JAFZA: Who Should File the Notification?
Companies operating in Jebel Ali Free Zone Authority (JAFZA) that undertake specified Relevant Activities must file an annual notification with their free zone authority and maintain sufficient economic substance in respect of those activities carried out within a financial year. This means for every activity it carries out, the company must demonstrate a “substantial economic presence” in the UAE. All JAFZA companies are required to notify their free zone authority of all relevant activities that were carried out during the financial year. The notification filing process for ESR is done through the MyJafza portal and should be filed before 31 December every year.
How to File Annual Notification for Economic Substance Regulations in JAFZA?
In line with the guidelines issued by the UAE Government, companies who are registered in JAFZA are required to file an annual notification for Economic Substance Regulations (ESR). Failure to comply may result in penalties.
The filing process requires a few simple steps:
- Login to your company’s account in JAFZA Online.
- Access the “Licensing & Compliance” link on JAFZA Online and select “Economic Substance Regulations (ESR)”.
- Enter all required information and click ‘Submit’ to file your notification for ESR.
- You will receive an email confirming your submission.
It is important to note that the notification must be filed before the end of each financial year. Additionally, if there are any changes in UAE residence status or relevant activities, a new notification must be filed within 30 days of such changes taking place in order to remain compliant with ESR regulations.
Economic Substance Test Requirements in JAFZA
For any Relevant Activity, an entity must pass the ‘economic substance test’ under JAFZA’s regulations to ensure that adequate economic substance is maintained. To pass this test, the entity must show that it has core income-generating activities (CIGAs) and that these CIGAs are carried out with sufficient qualified staff members, operational expenditure, premises, and physical assets in the UAE.
Penalties for Failing to File Economic Substance Notification in JAFZA
Failure to submit an ESN can lead to a certain range of penalties by JAFZA such as monetary fines, suspension or revoking of business licenses. The exact penalty depends on the type and extent of violation but usually includes a fine ranging from AED 10,000 up to AED 50,000 for each activity without an ESN. Additionally, the concerned authorities may impose additional sanctions in extreme cases. It is therefore important to ensure that all entities within a Corporate Group have filed their ESNs with JAFZA before their due date.
Can a company, being a part of a Corporate Group, file a Single Economic Substance Notification in JAFZA?
Yes, companies that are part of a corporate group are allowed to file a single Economic Substance Notification (ESN) in JAFZA. All entities within the Corporate Group must list their activities and comply with all the regulations set by JAFZA as part of the ESN filing process.
In conclusion, entities operating in JAFZA must meet all requirements of Economic Substance Regulations and ensure that adequate economic substance is maintained for each relevant activity. This includes filing an annual notification with their free zone authority before 31 December and passing the ‘economic substance test’ by demonstrating that sufficient CIGAs are carried out with qualified staff members, operational expenditure, premises, and physical assets in the UAE. Failure to comply may result in significant non-compliance penalties. To avoid such consequences, companies should consult a professional who has expertise in ESR regulations and filing processes.