ESR Audit by FTA: How to Make Yourself Ready

The FTA conducts an ESR audit of every licensee entity to check their compliance with ESR regulations. It sends a notification of the ESR audit via email so that the entities are prepared for the audit process. Entities must keep all the required documents ready to facilitate the ESR audit process.  

Once the ESR Audit notification from FTA is received, entities must provide all the required data, information, and documents within five days. If they miss these deadlines, they will be subject to penalties. Although the short time duration is a challenge, entities must comply with it to avoid fines.  

In this ESR audit, FTA assesses the entity’s relevant activity as reported in the submitted documents. It examines the licensee’s relevant activities and compliance with ESR provisions in each reported relevant activity. In addition, FTA requests other general information such as: 

• Details on nature of operations  
• Details of transactions with proofs such as purchase orders, invoices, etc. 
• Details of office or premises in the UAE, such as floor plan, etc. 
• Agenda and minutes of the meeting of Board members 
• Proof of presence of all resident and non-resident board members in the meeting  
• Number of full-time employees and proof for the same such as timesheets or biometric logs 
• CVs of employees working full-time or as contractual employees 
• Copy of outsourcing agreements if the entity is outsourcing the relevant activity 
• Information on physical assets in the UAE, such as cost, depreciation and impairment 
• Calculations and proofs of financial figures reported in the economic substance report, including relevant income from the relevant activity, profits/losses, etc.  

It is critical for entities to be prepared with all these documents and provide the same to FTA within five days of receiving the notification. FTA assesses these documents to check the entity’s compliance with requirements related to tax, governance, transfer pricing, financials, and operations.  

For this, you must be aware of your eligibility for ESR regulations. You must be mindful of all the provisions of the resolution that you need to comply with. In regards to this, you must create and maintain documents and records to show your ESR compliance to the FTA when they come for ESR Audit.  

You need to ensure that whatever information you provide in these documents and reports is accurate and true. The financial statements must be prepared as per the guidelines of the relevant authority and reported to FTA. The documentation for board meetings, outsourcing arrangements, contractual employees, and others must be maintained appropriately for reporting purposes.