What Factors Are Vital for Ensuring ESR Report Compliance upon Submission?

Created On: December 8, 2023
Newsletter, U.A.E.

Modified On: January 12, 2026

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This is to inform you that the Economic Substance Regulation (ESR) requires reporting by December 31, 2023, for the Financial Year ending December 31, 2022.

The Economic Substance Regulations (ESR) in the United Arab Emirates (UAE) require certain legal entities in domestic and free zones to conduct one or more of nine relevant activities (RA) (referred to as “licensees”) to comply with annual filing obligations.

Licensees earning income and meeting under the exempted licensee criteria (for instance, if a licensee operates as a branch of a foreign entity and its income is taxed in a foreign jurisdiction) must submit a notification but are exempt from filing a report.

Navigate ESR with Experts

There are other exemptions. The Ministry of Finance has recently released updated instructions in Ministerial Decision No. 100 of 2020, which can help firms determine whether they conduct a relevant activity and are exempted licensees.

Key Factors to Consider

Relevant Activities (RA): As per the UAE Ministry of Finance’s ESR Regulation, the responsibility for submitting an ESR Notification and ESR Report lies with Licensees involved in any pertinent activities and generating specified relevant income outlined in the regulation.

Reminder about the Deadline: The deadline to submit the ESR Report is approaching. We strongly encourage you to act promptly, to guarantee compliance with the regulatory obligations.

An entity must submit a notification within six months from the end of the fiscal year (FY) stating its engagement in RA, regardless of whether the licensee is exempt from the ESR or generates income from RA.

A report outlining specific business details should be filed within 12 months after the conclusion of the Fiscal Year, solely if income was derived during the period from RA and the licensee was not exempt from the ESR.

Consequences of Non-Compliance: Not submitting the ESR report by the specified deadline may lead to an administrative penalty of AED 50,000. It’s essential to adhere to the resolution’s provisions by submitting the report and any pertinent information or documentation to avoid these penalties. Furthermore, failure to comply with the Economic Substance regime for the year ending 31 December 2022 will have severe results, such as suspension or cancellation of your business license.

Suggested Steps for Your Business

ESR Evaluation: We advise all Licensees to undertake a thorough ESR assessment, irrespective of involvement in pertinent activities, and, if applicable, to submit an ESR notification and report via the MoF portal.

Accountability for Pertinent Activities: Licensees involved in relevant activities and generating relevant income are obligated to file the ESR Notification and ESR Report. They will be answerable to their respective regulatory authorities.

Key ESR Factors to Consider before the end of the Financial Year

All legal entities should address the following ESR matters and act, where applicable, before the end of the fiscal year:

The entity needs to evaluate if it engaged in and earned income from any of the nine RAs within the period. This assessment is crucial as it determines the entity's specific ESR compliance needs for the fiscal year
Entities that have generated income from RA during the fiscal year should assess their adherence to the relevant ESR evaluations, namely the directed and managed test, core revenue generating activities (CIGA) test, and adequate examination
After the review, entities should promptly undertake all essential measures before the fiscal year's conclusion to rectify any potential non-compliant areas (i.e., ensuring adherence to all relevant ESR tests)
Regarding the CIGA test, entities must showcase control and supervision over any outsourced arrangements during the fiscal year. This can be illustrated, for instance, through contractual agreements or correspondence
Given the FTA ESR audits, Licensees should gather pertinent supporting documents regarding their ESR compliance obligations and maintain them on file. Should they be chosen for an audit, Licensees have a brief timeframe of 5 working days to furnish the FTA with all requested documentation (i.e., demonstrating compliance with the ESR tests)

The guidance mentioned above (not exhaustive) is to offer entities a chance to initiate any required actions for ESR compliance before it becomes too late.

How Can IMC Be Your Trusted Ally?

Navigating the complexities of compliance with regulatory bodies such as the Federal Tax Authority (FTA) and the Ministry of Finance (MOF) can be challenging. At IMC, we understand the importance of staying in good standing with these authorities. That’s why we’re here to assist you in conducting a thorough ESR assessment and ensuring clear communication of your status to the regulatory authority.

By partnering with us and addressing these requirements promptly, you can avoid the stress of potential conflicts and significant penalties. Remember, we’re just a call or an email away for any additional guidance or questions you might have. Let’s tackle these challenges together, with ease and confidence.

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What Factors Are Vital for Ensuring ESR Report Compliance upon Submission?

Navigate ESR with Experts

Key Factors to Consider

Suggested Steps for Your Business

Key ESR Factors to Consider before the end of the Financial Year

How Can IMC Be Your Trusted Ally?

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