Economic Substance Regulations


On 30 April 2019, the UAE introduced the Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019), (the "ESR"). On 10 August 2020, amendments were introduced to Resolution 31 by the Cabinet of Ministers by way of Cabinet of Ministers Resolution No. 57 of 2020, which repealed and replaced Cabinet of Ministers Resolution No. 31 of 2019.

This was done as a part of UAE's commitment as a member of the OECD Inclusive Framework to implement the action points of OECD base erosion and profit shifting framework for countries across the globe with low or no corporate taxes where harmful tax practices such as tax avoidance and evasion are prevalent. UAE's move to implement ESR also came in response to an assessment of the UAE's tax framework by the European Union (EU) Code of Conduct Group on Business Taxation.

The objective of this new regulation is to ensure that all legal entities in UAE have genuine substance in the region and are reporting actual profits generated from activities conducted in the region.

The ESR applies to Licensees (i.e. legal persons and unincorporated partnerships registered by a competent authority in the UAE and that carries out a "Relevant Activity") across the UAE, including Free Zones and Financial Free Zones, and requires Licensees that carry on a Relevant Activity and derive income from such Relevant Activity to meet the Economic Substance Test (as defined in the ESR).

United Arab Emirates Economic Substance Regime

The Federal Economic Substance Regime consists of:

Relevant Activities

Relevant Activities are defined in the ESR as:

  • Banking business,
  • Insurance business,
  • Investment Fund Management business,
  • Lease-Finance business,
  • Headquarter business,
  • Shipping business,
  • Holding Company business,
  • Intellectual Property business, and
  • Distribution and Service Centre business.

ESR Notification and Filing Deadlines (2021)

Financial Year EndNotification filing deadlineES Report filing deadline
31 Mar 2020 31 Jan 2021 (extended deadline)31 Mar 2021
30 Apr 202031 Jan 2021 (extended deadline)30 Apr 2021
31 May 202031 Jan 2021 (extended deadline)31 May 2021
30 Jun 202031 Jan 2021 (extended deadline)30 Jun 2021
31 Jul 202031 Jan 202131 Jul 2021
31 Aug 202028 Feb 202031 Aug 2021
30 Sep 2020 31 Mar 2021 30 Sep 2021
31 Oct 202030 Apr 202131 Oct 2021
30 Nov 202031 May 202130 Nov 2021
31 Dec 202030 Jun 202131 Dec 2021
31 Jan 202131 Jul 202131 Jan 2022
28 Feb 202131 Aug 202128 Feb 2022
31 Mar 202130 Sep 202131 Mar 2022
30 Apr 202131 Oct 202130 Apr 2022
31 May 202130 Nov 202131 May 2022
30 Jun 202131 Dec 202131 Jul 2022

ESR Notification Filing

All DHCA Licensees and Exempted Licensees (i.e. persons that carry on one more "Relevant Activities") are required to notify the Registration Authority of the following annually (regardless of being exempt or not earning income), i.e. the "Annual Notification Requirement"

A notification submitted by an Exempted Licensee must be accompanied by sufficient evidence to substantiate the Exempted Licensee's status for each category in which it claims to be exempt.

The notification must be submitted within six months from the end of the Financial Year of the Licensee or Exempted Licensee.

The notification must be submitted electronically on the Ministry of Finance Portal (a link to the Portal will be provided in due course).

Economic Substance Report

DHCA Licensees (not Exempted Licensees) that undertake a Relevant Activity from which they earn income during a Relevant Financial Year, are required to:

  • Meet the Economic Substance Test.
  • File an Economic Substance Report.

The Economic Substance Report is due within 12 months of the end of the Licensees' Relevant Financial Year (Accounting Reference Period).

Note: Exempted Licensees or Licensees that carry on a Relevant Activity but did NOT derive income from that activity during a Relevant Financial Year, do NOT need to file an Economic Substance Report for that Relevant Financial Year (however a Notification is still required).

The report must be submitted electronically on the Ministry of Finance Portal (a link to the Portal will be provided in due course).

Filing Requirements and Templates

Frequently Asked Questions

  • The UAE introduced Economic Substance Regulation (ESR) on 30 April 2019 through a Cabinet of Ministers Resolution No. 31 of 2019.

  • The amended ESR legislation and guidance are as follows:

    The FAQs are also published by the Ministry of Finance on their website along with the flowchart.

  • The amended ESR legislation has brought in certain changes. Some of these which may require the licensee to re-assess are:

    • Legal type of licensees covered under ESR. Refer Q4 below for details
    • Treatment of branches. Refer Q9 below
    • Definition of certain Relevant Activities. Refer Q5 below
    • Exemptions. Refer Q8 below.
  • ESR applies to all judicial persons licensed with DHCA carrying on one or more "Relevant Activities" in UAE.

    The following persons are not covered under the Regulations:

    • A natural person
    • A sole proprietorship
    • A Trust
    • A Foundation

    Further, ESR is not limited to companies which are a part of foreign multinational group.

    If a Licensee does not undertake any Relevant Activity, it does not have comply with the ESR.

  • The Relevant Activities under the Economic Substance Regulations are:

    • Banking Businesses
    • Insurance Businesses
    • Investment Fund Management Businesses
    • Lease-Finance Businesses
    • Headquarters Businesses
    • Shipping Businesses
    • Holding Company Businesses
    • Intellectual Property (IP) Businesses
    • Distribution and Service Centre Businesses

    The MoF has released guide for relevant activities which is attached as an annexure to the Ministerial decision.

    It is important to note that there has been changes to the definition of Distribution and Service Centre Business and High Risk IP business.

  • The old definition of a 'Distribution and Service Centre Business' required the purchase of goods from a Foreign Connected Person, importing goods into UAE and subsequently reselling them outside UAE. This was amended to exclude the requirement to import and export goods from UAE. The new definition now only requires the purchase and resale of goods.

    The definition of a Distribution and Service Centre Business has also been amended to exclude the requirement of the services to be in connection with a business outside UAE. Therefore, licensees providing any services to a Foreign Connected Person will now qualify as service center business.

  • The definition of a High Risk IP business has been narrowed. The condition relating to a licensee not carrying out any research and development, or branding, marketing and distribution as part of its core income-generating activity in the UAE has been removed in the new definition.

  • No, substance over form approach should be adopted. The licensee is required to look beyond what is stated on the commercial license for the activities actually undertaken during the financial period.

  • The licensee is not required to comply with the ESR tests. However, the licensee is required to submit the notification for ESR.

  • The following licensees are exempt from ESR under the amended Regulations:

    • A Licensee that is tax resident outside the UAE;
    • An Investment fund and its underlying SPVs / investment holding entities;
    • A wholly UAE resident-owned business that is not part of a multinational group and that only carries on business in the UAE
    • A branch of a foreign entity that is subject to tax on all of its Relevant Income in a foreign jurisdiction.

    Please note that sufficient evidence must be submitted along with the Notification form to claim any of the above exemptions.

  • There are three types of branches:

    • Local branches of UAE entity
    • UAE branch of foreign company
    • Foreign branch of UAE entity

    The matters to be considered for each of these scenarios is listed below:

    • Local branches registered in the UAE are an extension of their parent/head office and do not have separate legal personality. Therefore, the entity with its head office registered in the UAE must file ESR notification and report as a single Licensee, reporting the Relevant Activities of itself and all its branches.
    • A UAE branch of a foreign entity that carries out a Relevant Activity will be within the scope of ESR as if it were a separate legal person, unless the branch is claiming exemption from ESR.
    • The UAE entity is not required to consolidate the activities and income of the foreign branch provided the Relevant Income of the foreign branch is subject to tax in the foreign jurisdiction where the branch is located.
    • In this context, a branch can include a permanent establishment or any other form of taxable presence for corporate income tax purposes which is not a separate legal entity.
  • The Reportable Period is the financial period commencing from 01 January 2019.

    For example- An entity having financial year starting 1 January 2019 to 31 December 2019, the reportable financial year under ESR will be 1 January 2019 to 31 December 2019.

  • All the licensees in DHCA within the scope of ESR and licensees claiming exemption are required to submit an annual notification under ESR within 6 months from the end of its financial year.

    Non-exempt licensees who earn income from Relevant Activities during a particular financial year will also be required to file an annual report under ESR within 12 months from the end of its financial year.

  • All the licensees in DHCA within the scope of ESR (i.e. performing a Relevant Activity) and licensees claiming exemption are required to resubmit a notification. We will provide an update on the method of this re submission shortly.

  • Licensees having financial year commencing on or after 1 January 2019 and ending 31 December 2019 is 30 June 2020.

  • There is no statutory requirement to file the notification by 30 June 2020. The notification deadline will be announced shortly.

    No penalties will apply if a notification for financial years ending after 31 December 2019 is not submitted by 30 June 2020.

  • No, in the above example, the Licensee's first reportable period will be 1 January 2020 to 31 December 2020 and the first Notification would be due in 2021.

  • Non-compliance with the obligation to file an ESR notification or any relevant information within the deadline shall attract a financial penalty. Pleas refer to Ministry of Finance website for details regarding the penalties

  • Providing incorrect, false, or misleading information in the ESR report form shall attract a financial penalty. Please refer to Ministry of Finance website for details regarding the penalties

  • ESR is a self-assessing requirement. DHCA is unable to make decisions on behalf of the licensees, as DHCA is required to validate the information submitted in ESR notification and reports by the licensees.

    If you require further information or advice, please refer to the MOF website or contact professional advisors.

  • At the Ministry of Finance's Economic Substance Regulations page, which includes additional FAQs and other useful background information.