UAE ESR — still required?
Cabinet Decision 98 of 2024 narrowed UAE ESR for financial years starting from 1 January 2023. It did not repeal it. What still requires filing, what does not, and what to do if a historical audit query arrives.
The clarification founders need
A persistent piece of poor advice circulating in the UAE setup market is that the UAE Economic Substance Regulations (ESR) have been "repealed" and therefore no filing is required. This is incorrect — and the consequences of relying on it can be severe.
The reality: ESR (originally Cabinet Decision 31 of 2019, then Cabinet Decision 57 of 2020) was substantially amended by Cabinet Decision 98 of 2024. The amendment narrowed the scope going forward. For financial years beginning on or after 1 January 2023, ESR no longer applies because UAE Corporate Tax (Federal Decree-Law 47 of 2022, effective from financial years starting 1 June 2023) replaced ESR\'s policy purpose. But for financial years that began before 1 January 2023, ESR continues to apply and continues to require notifications and reports — including for any reportable financial years that fall within the look-back period of an audit.
What is actually required in 2026
- If your last financial year began on or after 1 January 2023: no further ESR filings. UAE Corporate Tax compliance replaces ESR.
- If you had a Relevant Activity in any financial year that began before 1 January 2023, and you have not yet filed: file as soon as possible. Late filings still trigger penalties of AED 20,000 (notification) and AED 50,000–400,000 (report and substance failure).
- If you previously filed ESR notifications and reports correctly through to 2022: no further action required.
- If your group has subsidiaries in BVI, Cayman or Bermuda: those jurisdictions\' ESR regimes continue to apply in full. The UAE narrowing does not extend to other jurisdictions\' regimes.
The nine Relevant Activities (historical)
- Banking business
- Insurance business
- Investment fund management business
- Lease-finance business
- Headquarters business
- Shipping business
- Holding company business
- Intellectual property business (with high-risk IP carve-out)
- Distribution and service centre business
A UAE entity carrying on one or more of these activities in financial years beginning on or before 31 December 2022 must have filed an ESR notification and (for non-exempt entities) an ESR report for each such year.
If you are receiving an FTA audit query about historical ESR
Treat it as urgent. The FTA continues to audit historical ESR filings for as long as the relevant financial years remain within the statutory record-retention period (7 years). Engage tax-agent representation immediately; do not respond ad-hoc; the standard response template is well-developed and well-precedented.
Going forward — what replaced ESR
For financial years beginning on or after 1 January 2023, the policy concern that ESR addressed (preventing the UAE from being used as a no-substance, no-tax conduit) is addressed by:
- UAE Corporate Tax. The standard 9% rate applies to non-qualifying income; the QFZP 0% requires substance for qualifying activities.
- UAE Transfer Pricing. Arm\'s length principle, Master File and Local File requirements for groups above certain thresholds.
- Pillar Two DMTT. For in-scope MNE groups, the 15% minimum tax provides the substance-and-tax floor.