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Economic Substance Regulations (ESR) no longer require a notification or a report for financial years ending after . Cabinet Decision No. 98 cancelled those duties. Earlier years, requests from the Federal Tax Authority (FTA) and penalties already imposed still stand.
Source: Ministry of Finance, announcement on the amendment to the Cabinet decision on economic substance requirements, , checked .
What ESR was
In our sources, ESR means the Economic Substance Regulations, which carried two duties: a notification and a report. Those are the duties Cabinet Decision No. 98 cancelled for recent years. The word substance points to the idea behind the rules, which is whether a company is really present in the UAE. We do not describe the activities, deadlines or penalty amounts, because we hold no verified source for them.
What has changed
| Period | Position |
|---|---|
| Financial years ending after | Notification and report duties cancelled |
| Earlier years | Duties, requests and penalties still stand |
If you ever filed an ESR notification or report, or should have, keep those records. The cancellation looks forward from the financial years it names, not back.
What replaced the question in practice
ESR as a filing is gone for recent years, but the substance question did not disappear. It moved into corporate tax. A Qualifying Free Zone Person (QFZP) is a free zone person that keeps adequate substance in the UAE, earns Qualifying Income, has not elected to be taxed under Article 19, and meets the other conditions. A QFZP pays 0% on Qualifying Income and 9% on other taxable income. See qualifying free zone person for the conditions.
Source: Federal Tax Authority, corporate tax law, Article 18, checked .
Ministerial Decision No. 229 adds two conditions for a QFZP: non-qualifying revenue within the de minimis limit, and audited financial statements. For the audit side, see audit requirements.
Source: Ministry of Finance, Ministerial Decision No. 229, checked .
What to do now
- Check old years. If you held a licence for an ESR activity before the change, confirm that every year up to the cancellation was dealt with.
- Keep the papers. Notifications, reports and any correspondence with the authority are worth keeping, since penalties for past years still stand.
- Look at corporate tax. If you are a free zone company, the substance conditions are now tested through the corporate tax regime.
- Do not rely on old advice. Material written before the change may tell you to file. Check its date.
Limits of this page
We have read the Ministry of Finance announcement through a search extract, not the full text of Cabinet Decision No. 98. We do not give activity lists, report deadlines or penalty amounts, because we have no verified source for them here. For anything beyond what is stated above, check the current rule on the Ministry of Finance site or ask an adviser.
The wider tax picture is on the corporate tax guide and the UAE tax guide.
Questions people ask about the change
Is ESR the same as the corporate tax substance test? No. ESR was its own set of duties. The corporate tax substance condition is part of how a free zone person qualifies for the 0% rate.
Does the cancellation help a company that never filed? Not for older years. Past years, FTA requests and penalties still stand, so an old gap is a matter to raise with an adviser.
Who decides what counts as adequate substance now? For free zone persons the corporate tax law sets the condition, and the Minister can set more. Read the QFZP page and the Ministry of Finance decisions it points to.
