Economic Substance Regulations (ESR) were introduced in the UAE to align with international tax standards and prevent base erosion and profit shifting (BEPS). These regulations ensure that entities engaged in specific business activities maintain adequate economic presence within the UAE.

The key legal framework governing ESR includes:

• Cabinet Resolution No. 31 of 2019 – Defines ESR requirements and compliance obligations.

• Ministerial Decision No. 215 of 2019 – Provides clarification on relevant activities and reporting procedures.

Purpose of ESR in the UAE

ESR promotes corporate transparency, ensures fair tax practices, and enhances the UAE’s global reputation by ensuring that businesses engaged in relevant activities have a genuine presence and operational substance in the country.

Who Needs to Comply with ESR?

• Relevant Activities:
  Entities involved in:

  • Banking

  • Insurance

  • Fund management

  • Financing and leasing

  • Headquarters business

  • Shipping

  • Intellectual property

  • Holding company activities

  • Distribution and service center business

• Licensees & Exempted Licensees:
  Any entity licensed by a UAE authority, Free Zone, or Mainland, performing relevant activities.

Penalties for Non-Compliance

• Administrative Fines:

  • AED 20,000 for failure to submit ESR notification

  • AED 10,000 to AED 50,000 for failure to pass the Economic Substance Test

• Reputational Risks:

  • Negative public exposure

  • Loss of investor and partner trust

  • Regulatory scrutiny and business disruption

First Reportable Period

The first ESR reportable period required UAE businesses to assess their activities, conduct a substance test, and submit the necessary notifications and reports in a timely manner.

UAE Economic Substance Advisory by IAZ Business Solutions

At IAZ Business Solutions, we provide end-to-end support to ensure your business complies with ESR regulations confidently and efficiently.

🔹 Our ESR Services Include:

• ESR Assessment
  Comprehensive evaluation of your business operations to determine if you fall under ESR scope and identify compliance gaps.

• ESR Compliance Support
  Implementation of frameworks, policies, and procedures that meet ESR standards and ensure ongoing compliance.

• ESR Reporting & Submission
  Assistance in preparing and submitting ESR notifications and reports in accordance with FTA deadlines and formats.

• ESR Appeals & Advisory
  Expert guidance and representation during disputes or appeals, helping you manage and resolve regulatory challenges.