The UAE has announced that the Economic Substance Regulations (ESR) no longer apply to financial years ending after 31 December 2022. The change, made by Cabinet Decision No. 98 of 2024, ends a regime that has required many UAE companies to file annual notifications and reports since 2019.
Why the change
With Corporate Tax now in force, substance is addressed through the tax system, for example in the conditions for Qualifying Free Zone Persons. Keeping ESR alongside it would have meant businesses proving their substance twice.
What changes
- No ESR notifications or reports are required for financial years ending after 31 December 2022.
- Penalties relating to those years are cancelled, and penalties already paid for them are to be refunded.
What does not change
ESR still applies to financial years from 2019 to 2022. If your business carried out a relevant activity during those years:
- outstanding notifications and reports for those years still need to be filed; and
- penalties already imposed for those years still stand, although they can be reviewed or challenged through the normal process where there are grounds.
What to do now
- Check your filing history for 2019 to 2022, and make sure nothing is outstanding.
- Review any penalties you have paid, and whether any relate to years now outside the regime and may be refundable.
- Keep your records of past submissions, in case questions arise later.
- Look at substance through a Corporate Tax lens, particularly if you rely on free zone benefits.
If you would like us to review your ESR position for past years or help with a refund, please get in touch.
This article is general information based on the rules as we understand them at the date of publication. It is not advice on your circumstances. Laws and practice change, so please speak to us before acting on it.
