Economic Substance Regulations (ESR) in UAE

Ensure your business meets UAE’s Economic Substance Regulations with our expert financial services. We help you demonstrate real economic activity, safeguarding your company’s reputation and compliance. Trust us to align your operations with UAE’s rigorous ESR requirements.

The Purpose of ESR

The Economic Substance Regulations (ESR) in the UAE are designed to prevent multinational corporations and businesses from artificially transferring profits to low-tax jurisdictions without conducting substantial activities there. The UAE is identified as one such jurisdiction.

As a response, the ESR mandates that businesses engaged in geographically mobile business activities submit a detailed annual report to authorities. The objective is to prove that these businesses have genuine substance and legitimate operations within the UAE.

Assessment of your ESR Compliance

If your business in the UAE is involved in certain activities (Relevant Activities), it’s crucial to file a notification within six months after your financial year ends. The notification should include information about the activities conducted, any earned income, and whether that income was taxed outside the UAE. If your UAE business has multiple branches, only one consolidated notification must be submitted.

ESR Exemptions

Entities in the UAE may be exempt from filing under the Economic Substance Regulations (ESR) in certain situations. Exemptions apply to entities entirely owned by UAE residents and not part of a multinational group, provided they conduct their economic activities solely within the UAE. Additionally, licensees or entities that are tax residents outside the UAE, investment funds and branches of foreign companies subject to tax in other jurisdictions are exempt from these ESR filing requirements.

Economic Substance Tests

Core Income Generating Activity (CIGA) Test:

This test requires the core activities to take place in the UAE.

Control Test:

Your relevant activities should be directed and managed in the UAE.

Adequacy Test:

This test demands adequate resources such as full-time employees, expenses and assets in the UAE.

Process Towards ESR Compliance



Analysis of trade license, financials and activities performed by the company

Relating the relevant transactions to the relevant activities

Verifying if the company meets the Economic Substance tests

Filing the notification with the Ministry of Finance after six months of financial year ending

Preparing audited financials

Filing your ESR reports 12 months after the financial year ending

Relevant Activities Under ESR in UAE


Core Income Generating Activities (non-exhaustive)

a) Raising funds, managing risk including credit, currency and interest risk

b) Taking hedging positions

c) Providing loans, credit or other financial services to customers

d) Managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business


Core Income Generating Activities (non-exhaustive)

a) Agreeing funding terms

b) Identifying and acquiring assets to be leased (in the case of leasing)

c) Setting the terms and duration of any financing or leasing

d) Monitoring and revising any agreements

e) Managing any risks


Core Income Generating Activities (non-exhaustive)

a) Predicting and calculating risk
b) Insuring or re-insuring against risk and providing insurance Business services to clients
c) Underwriting insurance and reinsurance


Core Income Generating Activities (non-exhaustive)

a) Taking relevant management decisions
b) Incurring operating expenditures on behalf of group entities
c) Coordinating group activities


Core Income Generating Activities (non-exhaustive)

a) Managing crew (including hiring, paying and overseeing crewmembers)
b) Overhauling and maintaining ships
c) Overseeing and tracking shipping
d) Determining what goods to order and when to deliver them, organizing and overseeing voyages

Investment Fund management

Core Income Generating Activities (non-exhaustive)

a) Taking decisions on the holding and selling of investments
b) Calculating risk and reserves
c) Taking decisions on currency or interest fluctuations and hedging positions
d) Preparing reports to investors or any government  authority with functions relating to the supervision or  regulation of such business

Intellectual property (IP)

Core Income Generating Activities (non-exhaustive)

Where the Intellectual Property Asset is a:
1. Patent or similar Intellectual Property Asset:
a) Research and development
b) Marketing intangible or a similar Intellectual Property Asset: Branding, marketing and distribution
2. In exceptional cases, except where the Licensee is a High Risk IP Licensee, the Core Income Generating Activities may include:
a) taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating income
b) taking the strategic decisions and managing (as well as bearing) the principal risks relating to acquisition by third parties and subsequent exploitation and protection of the intangible asset
c) carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third parties


Distribution and Service Center

Core Income Generating Activities (non-exhaustive)

a) Transporting and storing component parts, materials or goods ready for sale
b) Managing inventories
c) Taking orders
d) Providing consulting or other administrative services

Holding Company

Core Income Generating Activities (non-exhaustive)

Activities related to a Holding Company Business

Industries We Serve

Frequently Asked Questions

Companies involved in doing ‘Relevant Activities’ declared by the government are required to follow ESR norms.

Companies engaged in ’Relevant Activities’ are subject to ESR irrelevant of the location.

What if ESR Reports are Submitted Late? Late submission of ESR reports incurs a penalty of AED 20,000. Ensure compliance by meeting all reporting deadlines.

Non-compliance can result in penalties and legal actions. In some cases it may force the business to shut down all over.

Generally ESR reports are annual so it is a good practice to check for new regulations once a year.