Step-by-Step Guide to ESR Compliance in the UAE: How to Prepare Your Business

8 Aug 2025

By Vista Corp

Introduction to Economic Substance Regulation (ESR) in the UAE

Let’s get real—setting up a business in the UAE comes with its perks: tax benefits, investor-friendly policies, and a strategic global location. But if your business generates income from specific activities, the UAE government wants to make sure you’re not just a nameplate on a door. Enter the Economic Substance Regulation (ESR).

The ESR compliance UAE framework was introduced in 2019 by the UAE Ministry of Finance to meet the global standards set by the OECD (Organisation for Economic Co-operation and Development). These standards are part of a broader fight against tax evasion and are linked to what’s known as BEPS – Base Erosion and Profit Shifting. In plain words? The UAE doesn’t want companies to register there just to avoid taxes elsewhere.

If your company earns money from what’s called “relevant activities” (we’ll get into those soon), then you’re expected to prove that you’re doing real business in the UAE. That means more than a PO box and a flashy office address.

Why is Economic Substance Regulation UAE such a big deal? Because failing to comply can land your business in hot water—with fines, reputational damage, and possibly license suspensions. The UAE wants to position itself as a responsible and transparent jurisdiction, and ESR is one way of proving that to the world.

Think of ESR UAE as a test. And like any test, it has specific criteria—location, substance, and control. The aim? To show you’re not a ghost company. You need actual staff, an office, and clear decision-making conducted within the UAE. It’s about showing your business has “substance.”

This guide will walk you through everything—from understanding if your business falls under the UAE ESR regulations to filing your ESR notification and report, and preparing your documents to avoid ESR penalties UAE. Whether you’re a mainland entity, a free zone company, or an offshore setup, the steps are similar—but the implications are serious.

Who Must Comply With UAE ESR Regulations?

Before you start panicking about forms and filings, let’s first figure out if your company actually falls under the ESR compliance UAE requirements.

So, who’s on the hook? The UAE government classifies businesses into two categories: “Licensees” and “Exempted Licensees.” If you’re a licensee and your company carries out any of the 9 relevant activities under ESR UAE (we’ll cover these next), you must comply with the regulations.

Let’s break that down.

✅ Entities That Must Comply with ESR UAE:

• Mainland Companies registered with DED (Department of Economic Development)
  
• Free Zone Companies (including DIFC, DMCC, ADGM, JAFZA, etc.)
  
• Offshore Companies (like RAK ICC, Ajman Offshore, JAFZA Offshore)
  
• Branches of Foreign Companies operating in the UAE
  

Whether you’re an LLC, a partnership, or even a single-shareholder business, if you earn income from relevant activities, you need to comply.

It doesn’t matter if your business is dormant, small, or still in its early stages—if there’s income, the ESR applies.

Who Is Exempt from ESR in UAE?

You might get a pass if:

• You’re a tax resident in another country.
  
• You’re a UAE branch of a foreign company (and all income is reported in the parent company’s jurisdiction).
  
• You perform holding activities that don’t generate income.
  
• You’re licensed but didn’t generate income from any ESR-relevant activity during the financial year.
  

But here’s the catch—even if you’re exempt, you still have to file an ESR notification to explain why.

Management & Control Matter Too

It’s not just about registration. If your board of directors or decision-makers operate outside the UAE, it could disqualify your ESR compliance, especially under the economic substance test UAE criteria.

So, if you’re:

• Making decisions from abroad
  
• Running operations remotely without local staff
  
• Using a virtual office setup with no real lease or team
  

…you may be waving a red flag to the Ministry of Finance.

In short, don’t assume you’re off the hook. ESR compliance isn’t just about where you’re licensed—it’s about where you work, think, and manage.

The 9 Relevant Activities Under ESR UAE

Now that you know whether your business needs to comply, let’s get into the heart of the ESR framework—the 9 relevant activities under ESR UAE. These are the specific income-generating operations the UAE government watches closely. If your business is involved in any of them, you’re expected to demonstrate economic substance in the UAE.

Here’s a quick breakdown of each activity—and what it really means for your company:

1. Banking

• Licensed financial institutions offering traditional banking services.
  
• Must show regulated operations, local decision-making, and physical offices.
  
• Typically includes commercial banks and private banking units.
  

2. Insurance

• Companies offering life, health, property, or corporate insurance.
  
• Includes both insurers and reinsurers.
  
• Requires proof of risk assessment, underwriting, and claims processing from within the UAE.
  

3. Investment Fund Management

• Businesses managing funds on behalf of clients.
  
• Involves portfolio selection, risk management, and asset monitoring.
  
• This doesn’t include passive investors or self-managed funds.
  

4. Lease-Finance

• Companies offering credit facilities, loans, or financing services, whether secured or unsecured.
  
• Includes both conventional and Islamic financing.
  
• Income from leasing tangible assets also falls under this.
  

5. Headquarters Business

• Provides strategic oversight, control, or management services to other group companies.
  
• Could include HR, legal, compliance, and finance leadership roles.
  
• It’s not about having a fancy title—it’s about actual management control from within the UAE.
  

6. Shipping

• Not just any logistics company.
  
• Covers vessel operation, crew management, technical support, and shipping contracts.
  
• Applies only if you operate seaborne vessels.
  

7. Holding Company Business

• Businesses that hold shares or equity interests in other companies.
  
• They earn dividends and capital gains, without actively managing the businesses.
  
• Less strict ESR tests apply here—but compliance still matters.
  

8. Intellectual Property (IP) Business

• High-risk category.
  
• Includes copyrights, trademarks, patents, software licenses, and R&D.
  
• Must show genuine innovation and control of IP assets from the UAE.
  

9. Distribution and Service Centre Business

• Involves:
  
  • Importing goods and storing them in the UAE before export.
    
  • Providing services to foreign affiliates without being a full-fledged manufacturer or vendor.
    
• Must prove warehousing, logistics, or service activities happen inside the UAE.
  

📌 Tip: Even if you perform just one of these activities and generate income, you must pass the economic substance test UAE. And yes, more than one activity? Then you’re expected to report each one separately in your ESR report.

Understanding Core Income Generating Activities (CIGAs)

So, you’ve identified that your company is involved in one (or more) of the 9 relevant activities under ESR UAE. The next big question? Are you doing enough in the UAE to justify your profits? That’s where Core Income Generating Activities (CIGAs) come in.

The CIGAs are the specific operations that create income tied to your relevant activity. They are the backbone of the economic substance test in UAE. To pass this test, your company must show that these core tasks are actually happening inside the UAE, not outsourced overseas or left on paper.

Let’s break it down by activity:

Examples of CIGAs for Each ESR-Relevant Activity

Why Are CIGAs So Critical for ESR UAE Compliance?

The UAE Ministry of Finance isn’t just interested in your licensing or branding—they want proof that the income-generating brain of your operation is in the UAE. That means:

• Local decision-makers (board members or executives) involved in CIGAs.
  
• Business activities performed by your own UAE-based employees, not fully outsourced.
  
• Office space or facilities aligned with the scale of your activity.
  

If your company claims income from leasing assets but all contracts are managed from abroad? Red flag.

If you hold IP but all R&D, licensing, and enforcement are done in another country? Another red flag.

📝 Quick Checklist to Identify CIGAs in Your Company:

• What activities directly generate income?
  
• Are those tasks executed in-house or outsourced?
  
• Are those operations taking place within the UAE, or remotely?
  
• Who supervises these activities—and are they based in the UAE?
  

In essence, CIGAs separate real operations from paper-only businesses. And to comply with the economic substance regulation UAE, you must prove these activities happen on UAE soil.

Economic Substance Test in the UAE – What You Must Meet

Okay, so you’ve got a relevant activity and you know what your Core Income Generating Activities (CIGAs) are. Now comes the ultimate checkpoint: the Economic Substance Test.

This isn’t a test you take on paper. It’s a compliance test your company must pass each financial year to avoid penalties. The test checks whether your business has enough “substance” in the UAE to justify the income you’re reporting from relevant activities.

Let’s break this test into its three main pillars.

1. Directed and Managed in the UAE

You can’t just register your company here and make decisions elsewhere.

To meet this requirement:

• Your board of directors or key managers must make strategic decisions in the UAE.
  
• You need to hold board meetings physically in the UAE (or virtually, with proof).
  
• Minutes of those meetings should be documented and signed in the UAE.
  
• Directors must have the necessary knowledge, experience, and control over the business.
  

This proves that your company isn’t just an offshore shell—it’s being run from within the UAE.

2. Core Income Generating Activities Must Be Conducted in the UAE

We covered this already, but here’s the ESR angle:

• Your business must perform its income-generating tasks inside the UAE.
  
• You need to prove this with employee records, office leases, contracts, and payroll data.
  
• Outsourcing CIGAs abroad (without UAE oversight) can lead to test failure.
  

If you’re claiming revenue from investment fund management, for example, the UAE government wants to see those decisions and operations happening locally—not from a remote setup or outsourced team.

3. Adequate Employees, Premises, and Expenditure in the UAE

This one focuses on whether your UAE setup looks like a real business or just a nameplate.

You need to show:

• Adequate number of full-time UAE-based employees relevant to your activity
  
• Physical office space or facility—virtual addresses don’t count
  
• Operational expenses paid in the UAE, aligned with business size and income
  

There’s no fixed number or size here. A holding company will need less than a shipping business. But whatever you claim, it must be proportionate and reasonable.

✅ In Summary:

To pass the economic substance test UAE, your company must:

• Be managed from the UAE
  
• Conduct all CIGAs in the UAE
  
• Have real employees, real office space, and real local expenses
  

Failing even one of these pillars can trigger penalties, rejections, or public listings as a non-compliant entity.

Exemptions from ESR in the UAE

Not every business that’s licensed in the UAE has to meet the full economic substance requirements. The UAE ESR regulations allow for certain exemptions, but—spoiler alert—even if you’re exempt, you’re not off the hook entirely.

Let’s break down who qualifies for ESR exemption UAE, what documentation is needed, and what businesses still need to do to stay compliant.

✅ Who Can Qualify as an Exempted Licensee?

You may be considered exempt from the full ESR compliance requirements if your business fits into one of these categories:

1. Tax Resident Outside the UAE
   
   • If your company is subject to corporate tax in a jurisdiction outside the UAE.
     
   • You’ll need to provide a valid tax residency certificate to prove this.
     
2. Investment Funds and Their SPVs / Holding Entities
   
   • Investment funds are exempt, along with special purpose vehicles (SPVs) or holding companies owned by these funds.
     
3. Entities Wholly Owned by UAE Residents
   
   • If your entity is 100% owned by UAE nationals or residents, and doesn’t form part of a multinational group and only operates within the UAE.
     
4. UAE Branches of Foreign Companies
   
   • If the entire income of your UAE branch is taxed in the foreign parent company’s country, you’re likely exempt.
     
5. No Relevant Income Generated
   
   • Even if you perform a relevant activity, you may be exempt if you didn’t earn income from that activity during the financial year.
     

But Wait—Exempt Doesn’t Mean Ignored

Even if you qualify as an Exempted Licensee, you still need to:

• Submit an ESR notification on the Ministry of Finance portal.
  
• Declare your exemption status and upload evidence (like tax certificates or ownership records).
  
• Maintain documents that prove your exemption in case of future audits.
  

Skipping the notification? That could still land you a penalty. The UAE ESR guide makes it clear—declaration is mandatory, exemption or not.

📌 Key Tip:
Always review your business model annually. You may be exempt this year, but a change in ownership, business activity, or structure could make you fall under ESR next year.

ESR Notification and Report: Filing Process in UAE

Alright, so you’ve figured out whether your company is subject to ESR—or maybe you’re exempt. Either way, you’ve got paperwork to do. The UAE ESR compliance steps involve two key filings: the ESR Notification and the ESR Report.

These aren’t optional. Even exempt companies must file the notification on time. Missing deadlines or providing incorrect info? That’s a one-way ticket to ESR penalties in the UAE.

Let’s walk through how to file both—step by step.

📍 Step 1: File the ESR Notification

All entities that fall under ESR, or claim an exemption, must submit a notification.

✅ What to Include:

• Basic licensee info (legal name, license number, authority)
  
• Financial year details
  
• Whether you carried out any relevant activities under ESR UAE
  
• If income was generated from those activities
  
• Whether you qualify for exemption, and why
  

When to Submit:

• Typically within six months after the end of your financial year. But always check the UAE Ministry of Finance ESR portal for current deadlines.
  

📌 Pro Tip:

Keep documentation handy—if you claim exemption, you’ll need to upload proof like tax residency certificates or group structure charts.

Step 2: File the ESR Report

If your business did generate income from a relevant activity, you’re required to file a full ESR Report.

✅ What to Include:

• Detailed business activity description
  
• Income earned and associated Core Income Generating Activities (CIGAs)
  
• Employee info (headcount, qualifications, contracts)
  
• Office space details (size, lease agreements)
  
• Financial expenditure in the UAE
  
• Management and decision-making structure
  
• Declaration of compliance with the economic substance test UAE
  

When to Submit:

• 12 months after the end of your financial year. So if your financial year ends in December, your ESR report is due the following December.
  

How to File Both Forms:

All ESR filings must be done through the Ministry of Finance ESR portal, where you’ll:

• Create a company account (or use your license authority’s pre-integrated login)
  
• Fill in and upload the ESR Notification first
  
• Later, submit the ESR Report with all supporting documentation
  

Common Mistakes to Avoid:

• Confusing the notification with the report—they’re different!
  
• Missing deadlines—leads to penalties
  
• Underreporting or overreporting employee numbers or CIGAs
  
• Not attaching the right exemption documents
  

Filing your ESR properly helps avoid fines, audits, and regulatory headaches. It also signals that your business is serious and transparent—exactly what the UAE wants to see.

ESR Documentation Requirements in the UAE

Think ESR compliance is just about ticking boxes online? Think again. Behind every notification and report lies a stack of proof that shows you’re actually doing business in the UAE—not just pretending to. The Ministry of Finance ESR UAE portal may be your filing point, but your documentation is what helps you sleep well during audits.

Let’s break down exactly what paperwork you need to have on hand—for both submission and safekeeping.

📂 Mandatory ESR Documents to Maintain

Whether you’re submitting an ESR report or claiming an exemption, these documents must be kept updated and ready:

✅ For All Licensees:

• Trade License (mainland, free zone, or offshore)
  
• Memorandum and Articles of Association (MoA)
  
• Audited or management financial statements for the reportable year
  
• List of business activities conducted and supporting evidence
  

✅ For Businesses Conducting Relevant Activities:

• Description of Core Income Generating Activities (CIGAs)
  
• Breakdown of income linked to each relevant activity
  
• Employee list with roles, qualifications, and UAE employment contracts
  
• Payroll records and evidence of salary disbursement in UAE
  
• Office lease or tenancy contract proving physical presence
  
• Utilities or Ejari certificates to support location claims
  
• Minutes of board meetings held in the UAE
  
• Proof of decision-making within the UAE (signed resolutions, agendas)
  

Documents for Exempted Licensees:

Even if you claim exemption, you’ll need to upload proof when filing your ESR notification.

• Valid Tax Residency Certificate (if claiming foreign taxation)
  
• Ownership structure chart (to show UAE-residency ownership)
  
• Group entity documentation (for investment funds/SPVs)
  
• Evidence of no income (bank statements or financials showing zero earnings)
  

📌 Best Practices for ESR Documentation:

• Keep all records for at least 6 years (even after filing).
  
• Digitize your documents and maintain backups—preferably on secure cloud storage.
  
• Update records immediately if your business activity, structure, or staff changes.
  
• Label everything by financial year for faster retrieval.
  

Staying ESR-compliant isn’t just about filing on time—it’s about proving your economic substance UAE requirements consistently. Think of your documentation like an insurance policy: you hope you won’t need to show it, but if the Ministry knocks, it better be ready.

ESR Compliance for Free Zone Companies in the UAE

Let’s bust a myth right now: Being in a UAE free zone doesn’t mean you’re exempt from ESR compliance.

Yes, free zones offer amazing benefits—flexibility, business-friendly rules, and attractive tax frameworks. But when it comes to Economic Substance Regulation UAE, your company is treated just like any other. If you’re conducting a relevant activity, you must comply—even if your operations are based in tax-free zones like DIFC, DMCC, ADGM, or JAFZA.

Why Free Zone Companies Are Often Caught Off Guard

Many free zone companies assume they’re automatically exempt because:

• They don’t pay corporate tax
  
• They operate within a “designated economic zone”
  
• Their income is derived from outside the UAE
  

Unfortunately, none of these factors matter for ESR purposes. If your income is linked to one of the 9 relevant activities, your company must:

• File an ESR notification
  
• Submit an ESR report, if income was earned
  
• Meet the economic substance test UAE just like a mainland or offshore business
  

Popular Free Zones Subject to ESR UAE:

Here are some high-profile zones where ESR applies just as strictly:

• DIFC (Dubai International Financial Centre)
  
• DMCC (Dubai Multi Commodities Centre)
  
• ADGM (Abu Dhabi Global Market)
  
• JAFZA (Jebel Ali Free Zone)
  
• RAKEZ, Sharjah Free Zone, Ajman Free Zone, Fujairah Free Zone
  

Whether you’re in a high-profile zone like DIFC or a smaller emirate zone, the rules are the same.

✅ Key Compliance Tips for Free Zone Companies:

• Don’t assume ESR doesn’t apply just because your revenue is foreign-sourced.
  
• Carefully assess whether any part of your business performs a relevant activity.
  
• Ensure your CIGAs are performed within the free zone premises, with UAE-based staff.
  
• Keep records of employee contracts, lease agreements, and financial statements.
  
• If your business is 100% owned by UAE residents and doesn’t belong to a multinational group, you may qualify for exemption—but must still notify.
  

📌 Reminder: ESR compliance in free zones is reviewed by both the free zone authority and the UAE Ministry of Finance. So make sure both are satisfied with your filings and documents.

ESR Penalties in the UAE for Non-Compliance

Let’s be blunt—failing to comply with ESR in the UAE can cost your business more than just money. From public embarrassment to license suspension, the Ministry of Finance is serious about enforcement. That means skipping your ESR obligations or submitting false data isn’t just risky—it’s a direct hit to your company’s credibility.

So, what actually happens if you mess up your ESR compliance UAE obligations? Here’s the breakdown:

Common ESR Non-Compliance Scenarios:

• Failing to file the ESR notification on time
  
• Missing the deadline for ESR report submission
  
• Submitting incomplete or incorrect information
  
• Failing the economic substance test UAE
  
• Ignoring requests for supporting documents
  
• Declaring an invalid exemption without proof
  

Penalties You Could Face:

And yes, your company’s name may be published on the official Ministry of Finance ESR non-compliance list. That’s not the kind of visibility anyone wants.

What Happens If You’re Flagged?

• You’ll receive a notification from the MoF with the violation details.
  
• You may be asked to submit additional documents or re-file your report.
  
• In some cases, you may need to appear before authorities or submit a formal appeal.
  

Even worse? Failing ESR two years in a row can lead to:

• License cancellation
  
• Revocation of operating rights
  
• Being blacklisted for future government deals or visa sponsorships
  

✅ How to Avoid ESR Penalties UAE:

• Mark your deadlines clearly based on your financial year
  
• Always file the notification, even if you’re exempt
  
• Double-check your ESR report for accuracy
  
• Keep all your supporting documents neatly organized
  
• If unsure, consult with a compliance advisor early
  

ESR compliance isn’t optional. And ignorance is not an excuse. Following the correct ESR filing process UAE helps protect your license, brand, and long-term business reputation.

How to Prepare Your Business for ESR Compliance in 2025

If ESR compliance felt a bit overwhelming so far—don’t worry. You’re not alone. But the good news is, with the right steps in place, preparing for ESR in the UAE doesn’t have to be a last-minute scramble.

Whether you’re new to ESR or reviewing your internal process for the next cycle, this step-by-step guide will help you stay compliant and penalty-free in 2025.

Step-by-Step ESR Compliance Checklist for 2025

✅ 1. Confirm Whether You Conduct Relevant Activities

• Review your license and business operations.
  
• Match your core services with the 9 relevant activities under ESR UAE.
  
• Document how your income is linked to those activities.
  

✅ 2. Conduct a Substance Assessment

• Ask: Are your Core Income Generating Activities (CIGAs) performed inside the UAE?
  
• Do you have local staff, office space, and expense records?
  
• Can you prove your business is directed and managed from within the UAE?
  

If any of these answers are “no,” make operational changes early.

✅ 3. Appoint an ESR Compliance Officer or Consultant

• Assign a responsible person internally.
  
• Or hire a third-party UAE ESR consultant to monitor filings and updates.
  
• They should coordinate between departments, legal teams, and the Ministry of Finance.
  

✅ 4. Maintain All ESR Documentation Year-Round

• Start a digital ESR folder by financial year.
  
• Keep updated copies of:
  
  • Financials
    
  • Contracts
    
  • Payroll
    
  • Lease agreements
    
  • Board meeting minutes
    
  • Employee records
    

Don’t wait until filing season—collect documents as activities happen.

✅ 5. Track ESR Deadlines

• ESR Notification: File within 6 months of financial year-end.
  
• ESR Report: File within 12 months of financial year-end.
  
• Set alerts or calendar reminders at least a month in advance.
  

✅ 6. Conduct Internal ESR Training

• Educate directors and department heads about ESR compliance.
  
• Hold quarterly reviews to ensure reporting accuracy.
  

✅ 7. Perform a Mock ESR Audit

• Simulate the ESR report process.
  
• Check if documents and systems hold up to Ministry of Finance scrutiny.
  
• Fix gaps before they become real issues.
  

Preparing early makes your ESR compliance process smoother, avoids last-minute errors, and keeps you on the safe side of the law. Treat ESR like an annual performance review for your company’s presence in the UAE.

Common ESR Compliance Mistakes to Avoid in the UAE

Even companies with good intentions can stumble when it comes to ESR compliance UAE. And unlike regular admin errors, mistakes here can result in fines, reputational damage, and license suspension.

The worst part? Many of these mistakes are completely avoidable if you know what to watch out for.

Let’s go through the most frequent ESR blunders and how to avoid falling into the same traps.

Mistake #1: Assuming ESR Doesn’t Apply to You

This one’s a biggie. Many business owners mistakenly think:

• “We’re in a free zone, so ESR doesn’t apply.”
  
• “We didn’t earn much revenue, so we’re safe.”
  
• “We’re not registered as a financial company, so we’re not on the radar.”
  

Reality check: If your business performs any of the 9 relevant activities and earns income, ESR applies. Period.

Mistake #2: Misclassifying Business Activities

If you list your company as a holding company, but in reality you’re also managing IP or leasing assets—you’ve under-reported. This can lead to:

• Filing an incomplete notification
  
• Failing the economic substance test UAE
  
• Triggering audits or penalties
  

✅ Fix: Always evaluate your full income sources and functions before selecting a relevant activity.

Mistake #3: Assuming Exemption Without Evidence

Even if your company:

• Has no income
  
• Operates only in the UAE
  
• Is owned by UAE nationals
  

…you still must file a notification and upload proof if you’re claiming exemption.

✅ Fix: Gather supporting documents—like tax residency certificates or group ownership charts—before declaring exemption.

Mistake #4: Not Meeting Physical Presence Requirements

Using a virtual office, hiring remote staff abroad, or failing to show local activity? These are red flags.

✅ Fix: Ensure your business has a real UAE presence, with:

• Actual office space
  
• Local employees on payroll
  
• UAE-based decision-makers
  

Mistake #5: Filing Late or Skipping the ESR Report

Missing ESR deadlines is more than just sloppy—it’s non-compliance. The UAE Ministry of Finance isn’t lenient on late submissions.

✅ Fix: Set ESR deadlines in your calendar and prepare filings at least 1 month in advance.

ESR UAE 2024–2025 Amendments You Should Know

Just when you think you’ve figured out the ESR process—bam!—the regulations evolve. That’s because ESR isn’t a set-it-and-forget-it framework. The UAE Ministry of Finance regularly issues amendments to ensure alignment with global standards, especially the OECD and EU tax transparency requirements.

If you’re preparing your compliance strategy for 2025, here’s what’s new—and what you need to do about it.

Key ESR UAE Amendments (2024–2025)

✅ 1. Enhanced Disclosure Requirements

• The updated ESR framework now asks for deeper insights into management structure and decision-making roles.
  
• Companies must show active management and not just passive ownership.
  
• Additional fields have been added to the ESR report—especially for IP and fund management entities.
  

✅ 2. Tighter Rules for Holding Companies

• Previously, holding companies had lighter compliance.
  
• Now, if your holding activity overlaps with lease-finance or service center activities, you may be reclassified and held to stricter standards.
  

✅ 3. Updated Guidelines on Shared Resources

• Companies using shared office space or shared employees must now disclose exact resource allocation per entity.
  
• This prevents firms from duplicating staff or space across multiple licenses.
  

✅ 4. New Portal Enhancements

• The Ministry of Finance ESR portal has been upgraded for faster review, but also has new automated red flag systems.
  
• Inconsistent reporting or missing attachments now gets flagged immediately.
  
• You may receive compliance reminders or audit notices faster than before.
  

✅ 5. Alignment with Upcoming Corporate Tax Regime

• While ESR is separate from the corporate tax system, 2025 filings will be cross-checked for consistency.
  
• For example, if you’re declaring income under ESR but not under tax filings—expect a review.
  

✅ 6. IP Business Scrutiny Increased

• If your company holds trademarks, patents, or earns from licensing IP, you’re under heightened scrutiny.
  
• You must prove real R&D, development, or enforcement activity within the UAE—not just IP ownership.
  

How to Adapt to These Changes:

• Review the UAE ESR compliance guide 2025 issued by the Ministry of Finance.
  
• Update your ESR documentation templates.
  
• Reassess your business classification and reporting structure.
  
• Train your compliance officer or internal team on the new ESR rules.
  

Staying up to date with these amendments ensures your business doesn’t just meet the baseline—but is ready for more detailed scrutiny and future audits.

ESR Compliance for Offshore Companies in UAE

If you’ve got an offshore company in the UAE and think ESR doesn’t apply—think again. While offshore entities may seem outside the regulatory radar, they’re very much within the scope of Economic Substance Regulation UAE if they earn income from relevant activities.

Let’s break down what offshore companies need to do to stay ESR-compliant and how their obligations differ from mainland or free zone setups.

Who Counts as an Offshore Company in the UAE?

These are legal entities registered in jurisdictions like:

• RAK International Corporate Centre (RAK ICC)
  
• JAFZA Offshore
  
• Ajman Offshore
  

They’re often used for asset holding, IP ownership, or international structuring due to their business-friendly frameworks.

But here’s the catch: If an offshore company earns income from any of the 9 relevant ESR activities, the same compliance obligations apply.

✅ ESR Requirements for Offshore Companies

Even without a physical office, an offshore company must:

• File an ESR Notification
  
• Submit an ESR Report (if relevant activity generates income)
  
• Pass the economic substance test UAE if applicable
  

Yes, even if your company is just holding shares or leasing equipment abroad—if that income flows into your UAE-registered entity, ESR kicks in.

Common ESR Triggers for Offshore Entities

• Holding company income (dividends, capital gains)
  
• IP revenue from patents, trademarks, licensing
  
• Lease-finance activities involving foreign assets
  
• Service center operations for related foreign parties
  

If any of these are relevant, your offshore company must show substance just like a mainland or free zone business.

Challenges Offshore Entities Face

• Lack of physical office space or staff
  
• Operations managed remotely or by nominees
  
• Limited accounting infrastructure
  
• Misunderstanding ESR exemptions
  

These factors can raise red flags and result in compliance failure.

✅ How Offshore Companies Can Stay ESR Compliant

• Establish a real UAE presence if performing CIGAs (renting space, hiring staff)
  
• Ensure UAE-based decision-making with documented board meetings
  
• Maintain accurate accounting and tax records
  
• File on time via the Ministry of Finance ESR portal
  

Offshore doesn’t mean invisible. If your company earns income in the UAE or benefits from its business environment, you must play by ESR rules—or face the consequences.

Best Practices for ESR Filing and Audit Preparedness

Let’s face it—scrambling at the last minute to prepare your ESR notification or report isn’t just stressful. It’s risky. Mistakes lead to penalties, and messy documentation can raise red flags with the UAE Ministry of Finance.

That’s why smart businesses adopt ESR best practices to stay ready year-round. Whether you’re a small operation or a multinational group, the key to smooth compliance is preparation, consistency, and documentation.

Here’s a playbook to help you nail it.

Maintain an ESR Compliance Folder

Set up a digital (and backed-up) folder with:

• Trade license and registration docs
  
• Audited financial statements
  
• Employment contracts
  
• Proof of lease or office tenancy
  
• Board meeting agendas and signed minutes
  
• Documents supporting CIGAs performed in the UAE
  
• Payroll slips or WPS records
  
• Group structure chart (if part of a wider network)
  

Organize this folder by financial year so you can retrieve everything easily when filing.

Schedule Quarterly ESR Check-Ins

Don’t wait for year-end. Hold quarterly reviews to:

• Check if your income still comes from relevant activities
  
• Update staffing, expenses, and office records
  
• Record decisions made by UAE-based directors
  
• Adjust filings if your business model has changed
  

This also helps spot gaps early—before they become compliance issues.

Use a Filing Calendar with Buffer Time

Create a compliance calendar that includes:

• ESR Notification deadline (6 months after financial year-end)
  
• ESR Report deadline (12 months after financial year-end)
  
• 30-day reminder alerts before each deadline
  

Always aim to finalize reports 2–4 weeks in advance to allow for revisions or missing documents.

Assign One ESR Responsible Officer

Whether it’s a compliance head, CFO, or hired consultant—make sure one person is accountable for:

• Tracking ESR changes
  
• Reviewing internal compliance
  
• Submitting reports and maintaining logs
  

Clear ownership = fewer missed steps.

✅ Conduct a Mock ESR Audit Annually

Simulate what would happen if the Ministry requests an audit:

• Can you prove physical presence?
  
• Are your employee roles clear and aligned with CIGAs?
  
• Is income reporting consistent with your business activity?
  

This drill helps you stay confident and ready—no surprises.

ESR Compliance & Ministry of Finance ESR UAE Portal Overview

So, you’ve got your ESR documents ready. Now what? It’s time to submit everything through the official Ministry of Finance ESR UAE portal. This is the only accepted platform for filing ESR notifications and reports, and using it correctly is just as important as the information you provide.

Let’s break down how the portal works and how to get your filings done without a hitch.

What Is the Ministry of Finance ESR Portal?

The portal is a dedicated online platform created by the UAE Ministry of Finance to:

• Receive ESR notifications and reports
  
• Verify supporting documents
  
• Track entity compliance across jurisdictions
  
• Provide updates and timelines for ESR-related deadlines
  

Here’s the link you’ll use for all filings:

How to Use the ESR Filing Portal – Step-by-Step

✅ 1. Register or Log In

• Visit the portal and create an account using your trade license number and email.
  
• Some companies may be pre-registered via their licensing authority (e.g., DMCC, DED, JAFZA).
  

✅ 2. Fill Out the ESR Notification Form

• Complete all mandatory fields:
  
  • Entity details
    
  • Relevant activity selection
    
  • Income declarations
    
  • Exemption claims (if any)
    
• Upload supporting documents (e.g., tax residency certificate if exempt)
  

✅ 3. Submit the ESR Report (if applicable)

• Provide detailed business activity data:
  
  • Description of Core Income Generating Activities
    
  • Employee headcount and qualifications
    
  • Office lease details
    
  • Local operational expenses
    
• Upload financial statements and proof of substance
  

✅ 4. Track Your Filing Status

• Once submitted, the portal will:
  
  • Confirm receipt
    
  • Notify you of any errors or missing documents
    
  • Update status (Under Review, Accepted, or Rejected)
    

Pro Tips for Smooth Portal Use

• Always double-check your license number and business category before submission.
  
• Keep your attachments in PDF format, with file sizes under the portal’s limit.
  
• If you face errors, use the MoF helpdesk or email support directly.
  

Using the Ministry of Finance ESR portal correctly ensures that your filings are not just complete, but legally valid. It’s the final step in proving your economic substance in the UAE—so take your time and file it right.

Conclusion: Why ESR Compliance Should Be a Priority in 2025

Let’s be honest—ESR compliance in the UAE isn’t just a regulatory formality. It’s a sign that your business isn’t just existing on paper—it’s actually working, employing people, making decisions, and creating value within the UAE.

As we move into 2025, compliance is no longer optional. The Ministry of Finance has stepped up enforcement, automated red flag detection, and expanded audits. That means any lapses—missed filings, incorrect claims, or lack of substance—can seriously impact your company’s standing.

Why You Can’t Afford to Ignore ESR Compliance

• It protects your trade license. Without compliance, you risk suspension or cancellation.
  
• It builds investor trust. A company that meets regulatory standards is seen as more credible and transparent.
  
• It avoids financial penalties. ESR fines can damage your cash flow and reputation.
  
• It aligns you with global tax standards. ESR ensures you’re not viewed as a tax haven entity by international authorities.
  

✅ Start Treating ESR Like a Core Business Function

If you wait until the last minute, you’ll rush through the process and miss details. But if you build ESR into your annual compliance cycle, it becomes second nature.

Make ESR part of your:

• Quarterly reporting
  
• Board meeting agendas
  
• Staff training
  
• Internal audits
  

The most compliant companies don’t just meet ESR—they prepare for it, track changes, and make it part of their business DNA.

Stay Ahead, Stay Transparent

ESR compliance isn’t about jumping through hoops. It’s about proving your business adds real value to the UAE economy.

By staying organized, filing on time, and documenting substance, you don’t just avoid penalties—you build long-term credibility in one of the world’s most attractive business hubs.

Frequently Asked Questions (FAQs)

What is ESR compliance in the UAE and who needs to comply?

ESR compliance refers to a company’s obligation to meet the requirements under the Economic Substance Regulations (ESR) introduced by the UAE. These rules ensure that companies performing certain income-generating activities have a genuine business presence in the UAE, not just a registration on paper.

Entities that need to comply:

• Mainland, free zone, and offshore companies
  
• Branches of foreign companies
  
• Businesses conducting any of the 9 relevant activities, such as banking, insurance, IP, shipping, and more
  

You need to comply if:

• Your company earns income from a relevant activity
  
• You operate within the UAE and are licensed by a local authority
  
• You aren’t exempt under specific conditions (e.g., being taxed in another jurisdiction)
  

If you meet these conditions, your company must:

• Submit an ESR Notification
  
• File an ESR Report if income is earned from a relevant activity
  
• Pass the Economic Substance Test by demonstrating local presence
  

Failure to comply can result in fines, reputational damage, and business license issues.

How can I check if my UAE company is subject to ESR regulations?

To check your ESR obligations, follow this self-assessment checklist:

Step 1: Check if you’re licensed in the UAE

• Are you a mainland, free zone, or offshore entity?
  
• Do you hold a valid trade license from any UAE authority?
  

Step 2: Identify if you conduct relevant activities

• Do your business operations include:
  
  • Banking or insurance?
    
  • Investment fund management?
    
  • Holding or leasing assets?
    
  • IP ownership or licensing?
    
  • Shipping or service center functions?
    

Step 3: Determine if you earn income

• Did your company generate any income during the financial year from these activities?
  

Step 4: Review exemption criteria

• Are you tax-resident elsewhere?
  
• Do you belong to an investment fund or its SPV?
  
• Is your business owned entirely by UAE residents with no cross-border operations?
  

If your answer to Step 2 and 3 is YES, and you don’t qualify for exemption, then ESR regulations apply to you. Use the Ministry of Finance ESR portal or consult a compliance advisor to confirm and take the next steps.

What are the Economic Substance Test requirements in the UAE?

The Economic Substance Test is the core of ESR compliance. It determines whether a UAE business that earns income from a relevant activity has a real operational presence in the country. To pass the test, your business must meet all three criteria:

✅ 1. Directed and Managed in the UAE

• Your company’s key strategic decisions must be made in the UAE.
  
• Hold board meetings in the UAE, with a quorum physically present.
  
• Document these meetings with signed minutes.
  
• Ensure your board members are competent and informed about the company’s activity.
  

✅ 2. Core Income Generating Activities (CIGAs) Conducted in the UAE

• Perform income-generating functions inside the UAE.
  
• Use UAE-based employees for these functions—not fully outsourced abroad.
  
• Activities must align with your business license and actual operations.
  

✅ 3. Adequate Employees, Office Space, and Expenditure in the UAE

• Hire a sufficient number of full-time employees in the UAE.
  
• Maintain a physical office space (virtual offices don’t count).
  
• Have reasonable operating expenses incurred locally, aligned with business size.

How do I file an ESR Notification and Report in the UAE?

Filing for ESR compliance in the UAE involves two separate submissions: the ESR Notification and the ESR Report. Both must be submitted through the Ministry of Finance ESR portal, and they serve different purposes.

✅ Step-by-Step: ESR Notification

This form informs the Ministry whether your company performed any relevant activity during the financial year.

When to file:

• Within 6 months after the end of your financial year
  

What to include:

• Company name, license number, and authority
  
• Type of relevant activity performed
  
• Whether income was generated
  
• Claim for exemption (if applicable) with supporting documents
  

✅ Step-by-Step: ESR Report

This is a detailed declaration that proves your company meets the Economic Substance Test.

When to file:

• Within 12 months after your financial year-end
  

What to include:

• Description of core income-generating activities
  
• Details on employees, office space, and operating expenses
  
• Financial statements
  
• Proof of UAE-based management and decision-making
  

Tips:

• Use PDFs for all uploads and keep them well-labeled.
  
• Start the process early to avoid portal issues or missing documents.
  
• If exempt, you only need to file the notification (with evidence).

What are the penalties for ESR non-compliance in the UAE?

Non-compliance with Economic Substance Regulation UAE comes with serious consequences—both financial and reputational. The Ministry of Finance has outlined clear penalties for failing to meet ESR requirements or providing incorrect information.

Here’s what can happen if your company doesn’t comply:

Failure to File ESR Notification

• Filing late or not filing at all may lead to an official warning and monetary fines.
  
• Even if you’re exempt, failure to notify can trigger compliance reviews.
  

Failure to Submit ESR Report

• If your business earns income from relevant activities but fails to file the report, it may be treated as non-compliant.
  
• Penalties are applied per financial year and can escalate with repeated violations.
  

Failure to Meet the Economic Substance Test

• If your company doesn’t prove UAE-based activity, the Ministry may:
  
  • Impose financial penalties
    
  • Share your company’s information with foreign tax authorities
    
  • Add your business to a public non-compliance list
    

Providing False or Misleading Information

• Submitting incorrect data—intentionally or not—can lead to:
  
  • Higher penalties
    
  • Regulatory investigation
    
  • Possible legal action
    

Repeat Offenses

• Fines may increase for second-time violations.
  
• In extreme cases, authorities can suspend or revoke your trade license.

What are the key deadlines for ESR compliance in the UAE for 2025?

Meeting the UAE ESR notification deadline and the ESR report deadline is vital to avoid penalties and maintain good standing. Here’s a streamlined timeline for the 2025 filing cycle, based on a typical financial year ending December 31, 2024:

Important 2025 ESR Deadlines

1. Financial Year-End
   
   • If your FY ends on December 31, 2024, mark it clearly in your annual records.
     
2. ESR Notification Deadline
   
   • Due by June 30, 2025 (within 6 months post-year-end).
     
3. ESR Report Deadline
   
   • Due by December 31, 2025 (within 12 months post-year-end).
     

Timing Tips

• Start early—gather documents and finalize your notification by May 2025.
  
• Allocate buffer time—aim to submit the ESR report by November 2025 to iron out any issues.
  
• If your FY ends on a different date (e.g., March 31, June 30), calculate deadlines based on those, keeping the 6- and 12-month rule in mind.
  

⚠️ What if You Miss a Deadline?

• Late Notification may lead to warnings, fines, or being flagged by the MoF.
  
• Late ESR Report typically triggers financial penalties and a breach record.
  
• The Ministry’s updated portal now flags late or missing submissions automatically, leading to faster enforcement.
  

✅ Stay on top of your ESR deadlines by syncing your financial year-end with calendar reminders. Early preparation not only keeps you compliant—it helps avoid stress and unnecessary fees.

What documents are needed to submit an ESR return in the UAE?

When filing your ESR notification and ESR report, the UAE Ministry of Finance requires specific supporting documents to verify your company’s compliance. Keeping these documents ready—and well-organized—is essential for a smooth filing process and audit readiness.

Documents for ESR Notification (All Entities)

Whether exempt or not, the following are typically required:

• Trade license (mainland, free zone, or offshore)
  
• License renewal certificate (if applicable)
  
• Shareholding or ownership structure diagram
  
• Group entity chart, especially if part of a multinational group
  
• Exemption evidence, if applicable:
  
  • Tax residency certificate (if claiming foreign taxation)
    
  • UAE-residency ownership documentation
    
  • Proof of no income from relevant activity (e.g., audited financials)
    

Documents for ESR Report (If Relevant Activity Generated Income)

To prove compliance with the economic substance test UAE, gather:

• Audited or reviewed financial statements for the financial year
  
• Breakdown of income by relevant activity
  
• Detailed description of CIGAs (Core Income Generating Activities)
  
• Payroll records (WPS, payslips, or employment contracts)
  
• Employee register with roles and qualifications
  
• UAE office lease agreement or tenancy contract
  
• Utility bills or Ejari certificate (to validate physical presence)
  
• Minutes of board meetings conducted in the UAE
  
• Evidence of UAE-based decision-making (emails, resolutions, attendance logs)
  

Best Practice:

• Keep everything in a labeled ESR folder by year.
  
• Scan documents as high-quality PDFs.
  
• Retain all supporting documents for at least 6 years, even after submission.

How to prepare your business for ESR compliance step-by-step?

If your business is subject to Economic Substance Regulation UAE, it’s essential to plan ahead and prepare thoroughly. Here’s a step-by-step guide to ensure your company is ESR-compliant throughout the year—not just during filing season.

✅ Step 1: Identify Relevant Activities

• Review your business model and revenue streams.
  
• Match them against the 9 ESR-relevant activities (e.g., IP, shipping, lease-finance).
  
• Confirm if you performed any during the financial year.
  

✅ Step 2: Determine ESR Applicability

• Are you generating income from these activities?
  
• Do you meet the exemption criteria (e.g., foreign taxation)?
  
• If not exempt, ESR compliance applies.
  

✅ Step 3: Assign Responsibility

• Designate an ESR compliance officer internally or hire an advisor.
  
• This person should handle reporting, deadlines, and document collection.
  

✅ Step 4: Evaluate Economic Substance

• Check whether your CIGAs (Core Income Generating Activities) are conducted in the UAE.
  
• Confirm:
  
  • Local employees on payroll
    
  • A physical office space
    
  • Decision-making occurring in the UAE
    

✅ Step 5: Maintain Documentation

• Organize financial statements, employee records, lease contracts, and board meeting minutes.
  
• Keep everything labeled by year and stored securely.
  

✅ Step 6: Monitor Deadlines

• File your notification within 6 months of financial year-end.
  
• Submit the report within 12 months.
  
• Set reminders and build a compliance calendar.
  

✅ Step 7: Conduct Internal Reviews

• Perform quarterly ESR check-ins.
  
• Adjust operations if you’re not meeting one of the economic substance test pillars.
  
• Conduct mock audits to prepare for real reviews by the Ministry.

What are the core income-generating activities under ESR in the UAE?

Core Income Generating Activities (CIGAs) are the main operational functions that create revenue for businesses performing ESR-relevant activities in the UAE. To comply with the Economic Substance Test, these activities must be carried out within the UAE, not outsourced entirely or conducted overseas.

Each of the 9 relevant activities under ESR UAE has its own set of CIGAs.

✅ Breakdown of CIGAs by Relevant Activity

Why Are CIGAs Important?

• The UAE government uses CIGAs to determine if your business truly operates locally.
  
• Performing these activities in the UAE is required to pass the Economic Substance Test.
  
• If CIGAs are done abroad or only on paper, your business could fail compliance—even if it’s licensed in the UAE.

What changes were made to UAE ESR regulations recently (2024–2025)?

The UAE Ministry of Finance has updated ESR rules for 2024–2025 to ensure stronger compliance and keep pace with international standards. These amendments affect companies across all sectors, especially those performing relevant activities.

✅ 1. Better Disclosure of Management Structure

• Your company must now report detailed roles of directors and key managers.
  
• ESR forms include extra fields asking where decisions are made and who signs final approvals.
  

✅ 2. Tighter Holding Company Criteria

• If a holding firm also earns income through leasing or servicing group companies, it may be reclassified.
  
• This would require deeper proof of UAE-based substance—like local staff or office space.
  

✅ 3. Resource Allocation for Shared Services

• Companies sharing office space or staff across multiple entities now must report exact allocation.
  
• This ensures each business independently meets substance requirements.
  

✅ 4. Portal Alerts and Red Flags

• The updated ESR portal now flags missing documents or inconsistencies instantly.
  
• You may receive alerts and requests for correction before your deadline
  

✅ 5. Closer Alignments with New Corporate Tax

• As UAE’s new corporate tax system rolls out, ESR filings will be compared with tax returns.
  
• Any mismatch in income reporting may trigger automatic scrutiny.
  

✅ 6. More Attention on IP Entities

• IP-holding and R&D companies face increased scrutiny.
  
• You must now demonstrate development, control, and commercialization of IP within the UAE.

Do all businesses in the UAE need to comply with ESR?

No, not every business in the UAE is required to fully comply with the Economic Substance Regulations (ESR). The rules are specifically targeted at companies that conduct one or more of the 9 ESR-relevant activities and generate income from them.

However, there’s an important distinction: even if ESR doesn’t apply, you may still need to file a notification.

✅ Who Needs to Fully Comply?

You must meet all ESR obligations (notification, reporting, and substance test) if:

• Your company conducts one or more relevant activities such as:
  
  • Banking, Insurance, Lease-Finance
    
  • Investment Fund Management
    
  • Headquarters or IP Business
    
  • Shipping, Distribution & Service Centres
    
  • Holding Company Business
    
• You earned income from those activities during the financial year
  
• You don’t qualify for any exemption status
  

Who Might Be Exempt but Still Must Notify?

Even if you believe your business is exempt, you must file a notification if:

• You are wholly owned by UAE residents
  
• You’re a branch of a foreign company that reports income in another country
  
• You earned no income during the financial year
  
• You belong to an investment fund structure
  

You’ll need to provide evidence to back up the exemption claim.

Who Is Completely Outside ESR Scope?

• Companies that don’t conduct any ESR-relevant activities
  
• Entities without a UAE trade license
  
• Sole proprietorships operating in sectors unrelated to the 9 listed activities

What are the 9 relevant activities under UAE ESR?

The UAE Economic Substance Regulations (ESR) apply only to businesses that carry out specific income-generating activities. These are known as the 9 relevant activities. If your company performs any of them—and earns income from them—you must comply with ESR.

✅ List of the 9 Relevant ESR Activities

1. Banking Business
   
   • Licensed financial institutions that accept deposits, issue credit, or manage funds.
     
2. Insurance Business
   
   • Entities providing life, property, health, or corporate insurance and reinsurance services.
     
3. Investment Fund Management Business
   
   • Firms managing funds on behalf of clients, involving asset allocation, performance monitoring, and risk control.
     
4. Lease-Finance Business
   
   • Companies offering loans, credit, or financial leasing—whether secured or unsecured.
     
5. Headquarters Business
   
   • Entities providing centralized management, control, or administrative services to related companies in a group.
     
6. Shipping Business
   
   • Companies operating seaborne vessels, managing crews, logistics, and voyages.
     
7. Holding Company Business
   
   • Entities whose primary function is to acquire and hold shares or equity in other companies.
     
8. Intellectual Property Business
   
   • Companies earning income from patents, trademarks, copyrights, or licensing. This is a high-risk category under ESR.
     
9. Distribution and Service Centre Business
   
   • Firms:
     
     • Importing goods and storing them in the UAE for re-export
       
     • Providing services to foreign group companies

How do I know if I meet the ESR substance requirements?

To determine if your company meets the ESR substance requirements in the UAE, you need to evaluate whether your business genuinely operates within the country—not just on paper. The Economic Substance Test consists of three key areas that must all be satisfied.

Here’s how to check your company’s readiness:

✅ 1. Management and Control

Ask yourself:

• Are strategic decisions made within the UAE?
  
• Do you hold regular board meetings in the UAE (physical or virtual with proper documentation)?
  
• Are your directors or decision-makers physically present or UAE-resident?
  
• Do you maintain signed board resolutions and meeting minutes?
  

If yes, you’re covering the “directed and managed” requirement.

✅ 2. Core Income-Generating Activities (CIGAs)

• Do you carry out the key income-generating operations inside the UAE?
  
• Are these activities linked directly to your relevant ESR activity?
  
• Are they performed by your team, not outsourced entirely abroad?
  

If your CIGAs are done locally, that’s a strong tick for ESR compliance.

✅ 3. Adequate Employees, Premises, and Expenditure

You must show:

• Enough UAE-based full-time employees
  
• A physical office space (no virtual offices)
  
• Reasonable local business expenses aligned with your revenue and scale
  

Quick Tip:

If your UAE presence looks like a real business—local people, real work, and ongoing operations—you likely meet substance requirements.

Failing any one of these three areas may result in non-compliance, penalties, or audit triggers from the Ministry of Finance.

Can a UAE mainland company be exempt from ESR?

Yes, a UAE mainland company can be exempt from Economic Substance Regulation (ESR)—but only if it qualifies under specific exemption criteria. The exemption is based on the nature of the business, not the jurisdiction.

Whether you’re licensed by a mainland authority or not, what matters is:

1. The activities you perform
   
2. Where your income comes from
   
3. Your ownership and tax status
   

✅ Mainland Companies May Be Exempt If They:

• Are tax residents in another jurisdiction
  
  • Must provide a valid tax residency certificate from that country
    
• Are wholly owned by UAE residents
  
  • Company must not be part of a multinational group
    
  • Must operate entirely within the UAE, with no cross-border transactions
    
• Are investment funds or entities owned by investment funds
  
  • Includes Special Purpose Vehicles (SPVs) or holding entities linked to the fund
    
• Earn no income during the relevant financial year
  
  • Even if licensed for a relevant activity, zero revenue can qualify you for exemption
    
• Are UAE branches of foreign companies
  
  • If the foreign parent reports the branch’s income in its own tax jurisdiction
    

But Remember:

Even if you’re exempt, you must:

• File an ESR Notification
  
• Provide evidence to support your exemption claim (e.g., tax certificates, group ownership chart)

How to calculate income attributable to relevant activities for ESR?

To comply with Economic Substance Regulation (ESR) in the UAE, your company must determine how much of its total income is linked to each relevant activity. This is a critical part of the ESR report and directly affects how you’re assessed under the economic substance test.

✅ Step-by-Step Guide to Calculating ESR-Related Income

1. Identify Each Relevant Activity

• Review your operations and classify all income-generating activities.
  
• Match these with the 9 ESR-relevant categories (e.g., lease-finance, shipping, IP).
  

2. Break Down Income Streams

• Separate your revenue by activity type.
  
• Use internal records, financial statements, or accounting systems to allocate:
  
  • Direct fees (e.g., licensing income for IP)
    
  • Service income (e.g., distribution or consulting)
    
  • Passive earnings (e.g., dividends from holding shares)
    

3. Allocate Direct and Indirect Costs

• Calculate the cost of generating income for each activity.
  
• This includes staff salaries, rent, utilities, and operational expenses linked to each segment.
  

4. Calculate Net Profit for Each Activity

• Subtract the relevant costs from the revenue linked to each ESR activity.
  
• This gives you a net attributable income, which is essential for the ESR report.
  

5. Document and Justify Your Calculations

• Maintain backup documentation like:
  
  • Invoices
    
  • Service agreements
    
  • Financial audit reports
    
  • Internal cost allocation summaries
    

📌 Pro Tip:

Ensure income reported under ESR matches what you file in your audited financials. Inconsistent reporting is a red flag and could lead to an audit or penalty.