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Economic Substance Regulations (ESR) were introduced in the UAE in 2019. They require certain businesses to demonstrate real economic activity — actual substance — in the UAE for the income they earn.

Four years later, many businesses still aren’t sure if they’re in scope — or if they’re complying correctly.

Who Is in Scope?

ESR applies to UAE onshore and free zone entities that earn income from any of these Relevant Activities:

• Banking
• Insurance
• Investment Fund Management
• Lease-Finance
• Headquarters
• Shipping
• Holding Company
• Intellectual Property
• Distribution and Service Centres

What Does “Substance” Mean?

To meet the Economic Substance Test, you must:

1. Conduct the Core Income Generating Activities (CIGAs) in the UAE
2. Be directed and managed in the UAE (board meetings, decisions made here)
3. Have adequate employees, premises, and expenditure in the UAE

The ESR Filing Requirements

• Notification: File annually via MoF portal (within 6 months of year end)
• Report: File if you have Relevant Activity income (within 12 months of year end)

Penalties for Non-Compliance

• Failure to file notification: AED 20,000
• Failure to file report: AED 50,000
• Failure to meet substance test: AED 50,000 (year 1), AED 400,000 (subsequent years)
• Information exchange: UAE authorities may share information with foreign tax authorities

Holding Companies: A Special Case

If your company only holds equity stakes and earns dividends/capital gains, the requirements are reduced — but you still need to file and maintain basic substance.

Action Checklist for 2026

• Identify if any of your entities conduct Relevant Activities
• Review income earned from those activities
• Assess whether your current UAE presence meets the substance test
• File notifications and reports on time
• Document board meeting minutes and decision-making in the UAE

Not sure if your business is ESR compliant? FSH Financial Consultants provides ESR assessments and filing support. Contact us at info@fshconsultants.com