Economic Substance Regulations or ESR is a set of regulations introduced by the government of the UAE as a committed member of the OECD. These regulations have been in effect since 2019. ESR was implemented to maintain transparency on a global level. Since the UAE offers a business and tax-friendly economy, many businesses try to avoid tax and commit frauds.Â
These fraudulent companies often try to shift their profits to low tax regions from high tax regions with an aim to reduce or pay no tax at all. To prevent such unethical practices, the UAE has imposed stringent ESR regulations. ESR encourages businesses to prove their economic presence and relevant substance activity in the UAE market.Â
New business can often find it a challenging adhering to the ESR regulations, and this is where the significant role of expert ESR Services in Dubai comes in! These services can help you navigate through ESR compliance, ensuring your business does not go through the risk of non-compliance and costly fines or penalties.Â
Some Challenges that Businesses Encounter with ESR Compliance
Difficulty in Understanding the Applicability of ESR
ESR tests involve closely studying the business activities from the point of ESR regulations to determine whether it comes under ESR or not. This takes expert knowledge and experience to do, and not everyone can carry out an ESR test. So, it is recommended to hire professional ESR Services in Dubai to avoid any mistakes and delays.Â
Business Structure ComplexityÂ
Determining ESR applicability for companies with a complex business structure can be challenging. Doing it through an in-house team is not only difficult but also challenging. Hiring professionals to do it for you is cost-effective and less time consuming.Â
Difficulty Determining Relevant Activity
Some businesses have several relevant activities in their business that fall under ESR regulations. As per the ESR, there must be no duplicate reporting, only ancillary activities will be considered under the category of main relevant activity. So, pinpointing the main activities among multiple activities is challenging.Â
Challenges in Demonstrating the Substance
Once the main activity is identified, companies need to demonstrate the substance related to that particular activity. Everything needed for the business to carry out the main activity has to be documented.Â
Identifying Relevant Financial Inform
Many companies can struggle in determining their main financial income source that has to be reported under the ESR. Reporting the correct financial figures is a challenging task.Â
Adjustments in Business Operations
Businesses have to adjust their operations to comply with the ESR regulations. This process could involve modifying operations, restructuring and adjustments in management and directions, etc., which can be another challenge.Â
Risks of Non-Compliance
If companies fall under the Economic Substance Regulations (ESR) then they have to comply with them under any condition. Non-compliance can lead to heavy fines and penalties, also severe legal charges in some cases.Â
So, if you are looking for ESR Consultants in Dubai, look no further than TSAC! We are a leading tax consulting firm in Dubai, offer the best services in the country. Call us today!Â
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