About ESR
Introduced in the UAE in April 2019, the Economic Substance Regulations were designed to align with global standards and combat harmful tax practices. These regulations require certain UAE-based companies carrying out “relevant activities” — such as banking, insurance, shipping, intellectual property, or holding company activities — to demonstrate that they have genuine economic operations in the country.
The purpose is to ensure that companies are not merely shell entities established to shift profits but instead contribute real value to the UAE economy.
Who Must Comply with ESR?
The regulations apply to all UAE-licensed businesses, including those in free zones, that conduct one or more of the nine specific Relevant Activities. If a company carries out one of these activities, it must file an annual ESR Notification and, if it earns income from that activity, an ESR Report.
These activities include:
Banking
Insurance
Investment Fund Management
Leasing
Headquarters Business
Shipping
Holding Company Business
Intellectual Property (IP)
Distribution and Service Centre BusinessAnnual Notification & Economic Substance Report.
What All Licensees must follow.
- Notify if any Relevant Activities are carried out during the reportable period.
- If yes, indicate whether gross income in relation to Relevant Activity is subject to tax outside UAE.
- If IP Business, indicate if also High-Risk IP Business.
Submission of Economic Substance Report within 12 months after FY'end
- Type(s) of Relevant Activity
- Amount and type of income, OPEX and assets
- Number of employees with qualifications
- Information regarding CKA’s performed
- Declaration whether Economic Substance test is met
- Further information in case of High-Risk Intellectual Property Business
Amendment in Economic Substance Regulations in UAE:
- Cabinet Decision No 57 of 2020 UAE Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020 on 10 August 2020 which repeals and replaces Cabinet Resolution No.31 of 2019. The amended ES Regulations apply from 1 January 2019 and introduce important changes to the scope and application of the UAE economic substance regime in UAE.
- An Exempted Licensee includes any of the following entities registered in the UAE and which carry out a Relevant Activity:
- (a) an Investment fund
- (b) an entity that is tax resident in a jurisdiction other than the UAE
- (c) an entity wholly owned by UAE residents and meets the following conditions:
- (i) the entity is not part of a MNE Group
- (ii) all of the entity’s activities are only carried out in the UAE
- (d) a Licensee that is a branch of a foreign entity the Relevant Income of which is subject to tax in a jurisdiction other than the State.
- Exclusions from the definition of Licensee are: Natural persons, Sole proprietors, Trusts and Foundations. Therefore, they do not need to file a notification or meet the ES Tests.
