ECONOMIC SUBSTANCE REGULATIONS(ESR)

As per the Cabinet of Ministers Resolution No.31 of 2019, the UAE has introduced Economic Substance Regulations (ESR) on 30th April 2019. Guidance on applying the Regulations was issued on 11th September 2019 pursuant to Ministerial Decision No. 215 of 2019. Amendments to the Regulations were made on 10th August 2020 by the Cabinet of Ministers Resolution No. 57 of 2020

(“Regulations”), and updated Guidance was issued on 19th August 2020.


The Regulations required the companies and other business forms registered in the UAE that carry on one or more “Relevant Activities” to have economic substance in the UAE in relation to those activities and to comply with the return filing and notification obligations. These businesses are referred to in the Regulations as “Licensees.”


The ESR Regulations apply to financial years starting on or from 1st January 2019. The Entities that are within the scope of the Regulations have to submit an annual Notification form to the Ministry of Finance portal within six months from the end of their financial year and also submit an Economic Substance Report within 12 months from the end of the financial year (e.g., entities with financial year ending 31 December 2019 are required to file Economic Substance Report by 31 December 2020).

An entity does not need to fulfill the Economic Substance Test and submit an Economic Substance Report for a financial period in which it has not derived revenue from a Relevant Activity or if it fulfills the conditions for being exempt. However, a Notification form is required to be filed regardless.
Failure to comply with the Regulations can cause administrative penalties, exchange of information of Licensee or Exempted Licensee with the Foreign Competent Authority (as defined in Article 1 of the Regulations), and other administrative sanctions such as the revocation, suspension, or non-renewal of the entity’s trade license or permit.

Relevant Activities are:

The below-listed business activities are considered as “Relevant Activities” under the Regulations:

  1. Banking
  2. Insurance
  3. Investment Fund management
  4. Lease-finance
  5. Headquarters
  6. Shipping
  7. Holding company
  8. Intellectual property (IP)
  9. Distribution and service center

How can we support you?

Our consultants conduct a thorough business analysis of our client for a preliminary check on the applicability of the Economic Substance Regulation, Upon confirmation of applicability, we support and guide you to check whether the criteria on the satisfaction of Economic Substance are met In case the criteria are not met, then we identify the gaps and provide recommendations to ensure the compliance of the Economic Substance Regulation.

We assist in ensuring timely compliance with the notification filing requirements and reporting requirements of the Licensee to file the ESR Notification Form and Annual Substance Report to the Ministry of Finance.