FAQ on

Economic Substance Regulations(ESR)

(All you need to know)

The Regulations apply to Licensees that carry out any of the following Relevant Activities.

  • Banking Businesses
  • Insurance Businesses
  • Investment Fund Management Businesses
  • Lease-Finance Businesses
  • Headquarter Businesses
  • Shipping Businesses
  • Holding Company Businesses
  • Intellectual Property Businesses
  • Distribution and Service center Businesses

A “substance over form” approach must be used to determine whether a Licensee undertakes a Relevant Activity and is within the scope of the Regulations. This means looking beyond what is stated on the commercial license to the “Activities actually undertaken by the Licensee during a financial period

A Licensee is a juridical person or an unincorporated partnership that is registered in the UAE and that undertakes a Relevant Activity.


  • A limited liability company
  • A private shareholding company
  • A public shareholding company
  • A joint venture company
  • A partnership (e.g. a limited liability partnership, a limited partnership, a general partnership, etc.)


  • A natural person
  • A sole proprietorship
  • A Trust
  • A Foundation

Yes, if the ‘offshore’ company undertakes a Relevant Activity.

The following Exempted Licensees are exempt from filing an Economic Substance Report and the requirement to demonstrate substance in the UAE:

  • A Licensee that is tax resident outside the UAE;
  • An Investment fund and its underlying SPVs / investment holding entities;
  • A wholly UAE resident-owned business that is not part of a multinational group and that only carries on business in the UAE;
  • A branch of a foreign entity that is subject to tax on all of its Relevant Income in a foreign jurisdiction.

Sufficient evidence must be submitted along with the Notification form to claim any of the above exemptions. Please refer to Ministerial Decision 100 for more information.

If a Licensee does not undertake a Relevant Activity during a financial period, it does not need to meet the Economic Substance Test.

The Licensee would not be required to submit a Notification or submit an Economic Substance Report for the relevant financial period.

A Licensee that undertakes a Relevant Activity but that does not earn income from this activity in a financial period, is required to submit a Notification on the Ministry of Finance filing portal.

The Licensee will not be required to meet the Economic Substance Test or file an Economic Substance Report for that period.

No. The Regulations impose economic substance requirements on any UAE entity which carries on a Relevant Activity, regardless of whether the UAE entity belongs to a foreign multinational group.

However, a UAE-based Distribution Business, Service center Business, Headquarter Business or High-Risk IP Business would only be within the scope of the Regulations if the UAE entity transacts with foreign group companies. Distribution, Service center, headquarters and High-risk IP activities and transactions between UAE entities are not subject to Regulations.

Yes, a business that undertakes a Relevant Activity will be required to file a Notification, irrespective of the nationality or residency of its direct or ultimate owners.

A Licensee’s financial period should correspond to the period for which financial statements (if any) are prepared to. Newly incorporated Licensees may have either a short or long first financial period. More information and examples are available in the Economic Substance Notification and Report guidance.

No, a Licensee is only required to file a Notification and Economic Substance Report in respect of financial periods where a Relevant Activity was carried on. There may be instances where a Licensee may be required to file for one year but not the following year.

No, there is no minimum income requirement or threshold. If you carry out a Relevant Activity you are required to submit a Notification. If you generate revenue from a Relevant Activity – even if that was just a single dirham – you are required to file an Economic Substance Report and demonstrate economic substance in the UAE, unless you qualify for one of the exemptions

No. The Regulations do not allow Licensees that are part of the same group to be aggregated for economic substance purposes. Each Licensee will need to comply with the Regulations, and demonstrate economic substance on an individual basis. That being said, relevant economic substance (staff, functions, assets, etc.) maintained in the UAE by other group companies can be taken into account if that economic substance is made available to the Licensee under a service / outsourcing type arrangement

CIGAs are those activities that are of central importance to the licensee for the generation of the gross income earned from its Relevant Activity.

Employees who perform the CIGAs of a Licensee would in principle need to be resident or if nonresident, needs to be physically present in the UAE.

No, whilst obtaining a UAE Tax Residency Certificate requires certain minimum presence in the UAE, a UAE Tax Residency Certificate in itself is not proof of a Licensee having adequate economic substance in the UAE in relation to its Relevant Activity and the income earned from this activity.