Economic Substance Regulations(ESR) Dubai UAE
About Economic Substance Regulations(ESR) Dubai UAE
Economic Substance Regulations(ESR) Dubai UAE was brought out via Resolution 31 of 2019 in
April of the same year. The Economic Substance Regulation serve as a guideline for improving
the nation’s tax frameworks and will make companies more accountable for maintaining an
economic presence in the UAE. The Economic Substance Regulations ensure that all eligible
Onshore and Free Zone entities will demonstrate adequate economic presence within the UAE.
Let us now take a closer look at the Economic Substance Dubai guidelines, and why they are so
Why has the UAE introduced Economic Substance Regulations?
The UAE introduced the Economic Substance Regulations to reiterate its commitment towards
the OECD Inclusive Framework, of which it is a part. ESR in UAE came out as a result of the
assessment the country underwent by the EU Code of Conduct on Business Taxation.
Introducing the Economic Substance Regulations UAE helped the country get off the EU
blacklist regarding taxation. The Economic Substance Regulations Dubai also helped the
country improve its taxation infrastructure and prevent companies from exploiting loopholes to
When did the Economic Substance Regulations enter into force?
The UAE brought into force Economic Substance Regulation UAE via a Cabinet of Ministers
Resolution on April 30th, 2019. The government further released a Ministerial Decision
containing guidance on how to apply these regulations on September 11th, 2019. After
consulting with the EU and OECD, the UAE made amendments to the ESR in UAE. These were
brought into force via a Cabinet of Ministers Resolution on August 10th, 2020. Additional
guidance regarding the amendments came out through a Ministerial Decision, which was the
100th of the year. The ESR compliance UAE received a broader definition through this
Amended Guidance which had a detailed guide on the Relevant Activities for ESR.
Who are the Regulatory Authorities?
Federal Entities or Regulatory Authorities
● Ministry of Economy
● Central Bank
● Insurance Authority
● Security and Commodities Authority
Free Zone Regulatory Authorities
● In Abu Dhabi:
1. Abu Dhabi Global Market
2. Media Zone Authority Dhabi
3. Abu Dhabi Airports Free Zone
4. Abu Dhabi Ports
5. MASDAR City
● In Dubai:
1. Dubai Airport Free Zone
2. Dubai Healthcare City Authority
3. Dubai International Financial Center
5. Dubai South / Dubai Aviation City
6. Jebel Ali Free Zone Authority/ DP World
7. Dubai World Trade Center
8. Dubai Humanitarian City
9. Dubai Development Authority
10. Dubai Silicon Oasis
11. Dubai Maritime City
12. Dubai Multi Commodities Centre
● In Sharjah:
1. Sharjah Airport International Free Zone Authority
2. Hamriyah Free Zone Authority
3. Sharjah Media City (Shams)
4. Sharjah Publishing City
5. Sharjah Research Technology and Innovation Park
6. Sharjah Healthcare City
● In Ajman:
1. Ajman Free Zone Authority
2. Ajman Media Free Zone Authority
● In Ras Al-Khaimah:
1. RAK International Corporate Centre
2. Ras Al Khaimah Economic Zone
3. RAK Maritime City
4. Umm Al-Quwain
5. UAQ Free Trade Zone
● In Fujairah:
1. Fujairah Free Zone
2. International Free Zone Authority
3. Fujairah Creative City
What are the Relevant Activities?
The Relevant Activities as per the Economic Substance Regulations UAE are businesses which
engage in the following activities:
3. Investment Fund Management
5. Headquarters Businesses
7. Holding Company
8. Intellectual Property Businesses
9. Distribution and Service Centre
UAE businesses which work in the sectors mentioned above must use Substance Over Forms
to determine whether they are eligible for the ESR guidelines. To do so, businesses must
assess all the activities they performed in one financial year, and not just the ones mentioned on
their commercial licence.Also, as per the Economic Substance Regulations UAE, businesses need not be actively engaged in these categories to be eligible for ESR.
Even a passive income through a finance lease makes the business liable to follow ESR in UAE. ESR compliance UAE mandates that businesses who carry out multiple relevant activities must demonstrate economic
substance for each one. In some cases, ESR in Dubai allows companies to consolidate their ancillary Relevant Activities to prevent multiple or duplicate reporting.
Who is a Licensee?
A Licensee is any juridical person, or unincorporated business or partnership registered and
eligible for ESR in UAE. Hence, it includes all individuals, persons and partnerships that engage
in a Relevant Activity in the UAE. Hence, as per Economic Substance Regulations UAE, a
License may be any one of the following;
1. Limited Liability Company – LLC
2. Private Limited Company
3. Public Limited Company
4. Joint Venture Company
5. Partnership Firm
However, as per Economic Substance Regulations Dubai, the following persons do not fall
under the category of Licensee;
● Natural Person
● Sole Proprietorship
What does it mean to be subject to the Regulations?
When a notice says, ‘subject to the Economic Substance Regulations UAE’, it means the following;
1. All Licensees that engage in and generate an income from a Relevant Activity must file
an annual Notification. As per ESR in Dubai, such a notification must reach the
Regulatory Authority six months before the end of the fiscal period.
2. Additionally, to maintain ESR Compliance UAE eligible licensees must file an Economic
Substance Report. As per Economic Substance Dubai guidelines, the licensees must do
so within 12 months from the end of the determined period.
3. When it comes to demonstrating substance, for every period a Licensee generates
income via a Relevant Activity, it must fulfil an Economic Substance Test.
An Economic Substance Test will need the Licensee to demonstrate the following as per Economic Substance Regulations Dubai;
1. All the Licensee’s Relevant Activities are directed and managed within the UAE
2. All the Core Income Generating Activities occur within the UAE
3. Licensee hires enough people, has adequate remises and meets the expense criteria in
the UAE as per the Economic Substance Regulation UAE
Who is subject to the Economic Substance Regulations UAE?
The Economic Substance Regulation UAE applies to all business entities and partnerships that
engage in a Relevant Activity within the UAE. They apply throughout the country, in both Free
Zones and Financial Free Zones alike. Hence, ESR in Dubai extends to all entities located
onshore and in Free Zones in case they generate an income from a Relevant Activity.For
instance, ESR compliance UAE regulations in the DIFC extends to all entities that conduct a
Relevant Activity within the jurisdiction of the DIFC. This is regardless of their business structure
type or operational size. Hence, the DIFC serves as the Regulatory Authority and enforcer of
the Economic Substance Regulations Dubai in its zone.
Since branches registered in the UAE act as an extension of the primary or parent branch, they
do not have a separate legal existence. Hence, if the parent company is in the UAE, it must file
one composite Notification and Report containing details of all its branches.
However, a branch of a foreign entity must comply with the Economic Substance Regulations
UAE, unless the income falls under taxation of the head office jurisdiction. This test is met when
the branch’s income is used to calculate the parent office’s taxable income. Also, when the
branch is registered outside the nation, the entity does not have to consolidate its activities to
comply. However, this holds only if the income from the foreign branch faces taxation under a
foreign jurisdiction. Additionally, the Economic Substance Regulations Dubai acts on entities
belonging to foreign multinational groups.
What is reportable period for economic substance purposes?
As per ESR in Dubai, the Reportable Period serves as the financial period, which begins from
January 1st, 2019. All entities must include their start and end dates while mentioning their
Reportable Period on the MOF Portal. Let us now consider a few examples which highlight the
Reportable Period for Economic Substance Regulation UAE purposes.
Any business whose Incorporation Date falls on February 10th, 2010 and has a financial year-
end on December 31st, will have the following Reportable Period:
● Start date: January 1st, 2019
● End date: December 31st, 2019
Any business whose Incorporation Date falls on July 1st, 2019 and has a financial year-end on
March 31st, 2020 will have the following Reportable Period:
● Start date: July 1st, 2019
● End date: March 31st, 2020
Any business whose Incorporation Date falls on June 1st, 2018 and has a financial year-end on
December 31st, 2019 will have the following Reportable Period:
● Start date: January 1st, 2020 for any period after January 1st, 2019
● End date: December 31st, 2020
Requirements to meet Economic Substance Test in UAE
The Economic Substance Regulations UAE have the following compliance requirements;
An entity carrying out Relevant Activities must:
1. Demonstrate substance using an Economic substance test
2. File a Notification six months before the end of the Reportable Period
3. File an Annual Substance Report/Return with detailed information within 12 months of
the end of the financial period
Which companies should file ESR notification in UAE?
ESR Filing UAE: Any licensee who undertakes one or more Relevant Activity and generates a Core Income from
it during a financial year must file a Notification under the Economic Substance Regulation UAE.
The Relevant Activities include;
3. Investment Fund Management
7. Holding Company
8. Intellectual Property Business
9. Distribution and Service Centre
Who is exempt from the Regulations?
Only entities of the following kind are exempt from filing a Notification as per the Economic
Substance Regulations Dubai;
1. Dissolved. or
2. Struck-off, or
3. Liquidated before the submission deadline for Notification
As per Amended ESR in Dubai, the following Licensees are exempt from filing a report, but
must file a Notification;
1. Tax resident outside the UAE
2. Investment Funds
3. Wholly owned by Emirati residents
4. Nott part of a multinational group
5. Business activities only in the UAE or branch of a foreign company that pays corporate
tax outside the UAE
What if I don’t file the ESR notification before the deadline?
Any one of the following might occur if you don’t file a Notification before the deadline as per the
Economic Substance Regulations UAE;
1. Payment of a penalty or fine
2. Suspend the trade license
3. Withdrawal or non-renewal of the business license
What are the penalties under the Regulations?
Here’s a list of the penalties companies are liable to pay under the Economic Substance
1. Does not file a Notification – AED 20,000
2. Does not submit a Report or documentation – AED 50,000
3. Does meet Economic Substance Test – AED 50, 000
4. Provides inaccurate information – AED 50,000
5. Second consecutive year of failure – AED 400,000 along with other action
What if a Licensee does not undertake a Relevant Activity during a financial period?
As per the Economic Substance Regulations Dubai, if a licensee does not engage in a Relevant
Activity, it need not meet the Economic Substance Test. The Licensee will also not have to
submit a Notification or Economic Substance Report for that period.
What KGRN offers?
1. Consultancy services regarding ESR guidelines
2. Helps companies identify whether they qualify for Economic Substance Regulation
3. Identify which business segments qualify for ESR compliance
4. Report and help achieve ESR readiness with ease
5. Facilitate and help with ongoing Economic Substance Regulation compliance
6. Secretarial services and record maintenance for ESR compliance
7. Economic Substance Regulation filing in the proper format
How can KGRN help in meeting the ESR guidelines?
As mentioned above, KGRN offers one of the UAE’s best ESR services. We can help
companies gauge whether they are eligible for the guidelines and if so, help them meet the
predetermined guidelines with ease. Our experts also help companies maintain accurate
records and file all required compliance documents.
Partner with KGRN and meet all your ESR requirements with ease!
Frequently Asked Questions
What are Economic Substance Regulations (ESR), and why did the UAE government enact them?
The UAE brought out the Economic Substance Regulation UAE in April 2019. The Regulations
ensure that all eligible Onshore and Free Zone entities will demonstrate adequate economic
presence within the UAE. Introducing the Regulations UAE helped the country get off the EU
blacklist regarding taxation. They also helped the country improve its taxation infrastructure and
prevent companies from exploiting loopholes to avoid taxation.
What is Economic Substance Test?
The Economic Substance Test helps firms demonstrate the following:
1. Core Income Generating Activities occur within the UAE
2. Entity monitor and directs the Relevant Activity in the UAE
3. The business employs enough employees, has suitable premises and expenditure in the
What is ESR compliance?
ESR compliance mandates the following from eligible licensees;
1. Filing of an annual Notification
2. Filing of an Economic Substance Report
3. Meeting an Economic Substance Test as mandated by the regulatory authority
What is ESR filing?
The two broad filing requirement under the ESR guidelines are as follows;
1. Annual Notification six months before the end of the fiscal period.
2. Economic Substance Report within 12 months from the end of the period.
What is Economic Substance Return?
The Economic Substance Return is an annual filing that must take place at least twelve months
before the end of a financial period. It demonstrates the economic substance of the eligible
Licensee and ensures they meet the Economic Substance Test as mandated by the authorities.
What is ESR form?
Eligible companies must file a Notification six months before the end of its Reportable Period.
All entities other than those dissolved, liquidated or sold off must file such a ESR form.
How to file ESR in UAE?
Eligible entities may file the ESR form via the MoF’s official web portal, which will go live in
How to submit ESR online?
To submit ESR online, applicants must go to the MOF’s official portal. Since the first
deadline for filing falls on December 31st, 2020 the portal will close shortly before that period.
What is ESR notification UAE?
All eligible entities which conduct a Relevant Activity must file an ESR Notification on the MOF
Portal, six months before the end of their Reportable Period.
How can I file ESR notifications in UAE?
Applicants may do so themselves through the MoF portal, or make use of an ESR consultancy service, which is quicker and more comfortable.
What is article4 of Economic Substance Regulations UAE?
Article 4 of the ESR guidelines highlights the application of the Regulations and the specific
Relevant Activities that come under the ESR.