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Economic Substance Regulations

The Economic Substance Regulations in UAE (also known as ESR for short) were enforced on the 30 of April 2019 via Cabinet of Minister Resolution No. (31) of 2019.


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What is ESR in UAE?

On 10th August 2020 New ESR was introduced via Cabinet Resolution 57/2020 which repealed and revoked Cabinet Decision no. 31/2019. Also, Ministerial Decision No 100 for the year 2020 replaced Ministerial Decision 215 for the year 2019.

So, Entities will now have to comply with Cabinet resolution 57/2020 & Ministerial Decision 100 for the year 2020 giving directives for the implementation of the provisions of Cabinet Decision no. 57/2020.

Later in August 2020, the UAE Ministry of Finance issued Ministerial Decision No. 100 of 2020 that contains a Relevant Activities Guide that helps ascertain if your business conducts a relevant activity and falls within the ambit of the ESR or if it is an Exempted Licensee under the Amended ESR. This regulation is intended to resist harmful tax practices while conforming to global standards. The regulations and guidelines apply in all UAE jurisdictions, including free zones. Since this is a relatively new regulation, businesses can be confused about how to file ESR. The best option is to seek guidance from ESR return submission consultants who have experience in this. Business consultants like Avyanco regularly monitor announcements and clarifications by the government regarding ESR.

Why Economic Substance Regulations were introduced in the UAE

The Economic Substance Regulation (ESR) set forth by the Organization for Economic Cooperation & Development (OECD) were introduced to

  • Comply with global Anti-Money Laundering regulations
  • Curtail harmful tax practices
  • Eliminate shell on-paper companies

Relevant Activities

Any business in the UAE carrying out relevant activities must demonstrate their Economic Substance in the UAE and submit their Economic Substance Report to the relevant regulatory authorities. Companies registered/formed in the UAE (including free zones) that carry out business in the following sectors must do ESR report submission in UAE.

Amendment in the ESR

The amendment in the ESR lays out changes in the regulation, such as the definition of a licensee, exempted licensee, and modifications to some relevant activities.

ESR Notification Form

Each year, the ESR notification form must be submitted by organizations within the ESR Regulation scope to the respective Regulatory Authority. Within 12 months from the financial year ending, must complete and submit the ESR Report to the same Regulatory Authority.

ESR Exemptions

Those businesses that have not yet earned income from any of the Relevant Activities and those eligible for ESR exemptions do not need to comply with the Economic Substance Test or file Economic Substance Report. However, a notification form is must be submitted.

ESR Submission Failure

If you failure to comply with the submission of the ESR it may result it

  • The imposition of ESR penalties.
  • Immediate exchange of information with the foreign Competent Authority.
  • Other administrative sanctions..

Step by Step Guide to ESR Return Submission in UAE

First Step

Eligibility Assessment

As a first step, the company needs to check whether the activities they conduct fall in either the list or subset of relevant activities. Only businesses who conduct relevant activity need to file notification within six months from the end of the applicable financial activity period.
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Second Step

Test Assessment

As the next step, the company has to make sure that they qualify for the Economic Substance Test. Before filing for notification, find the template notification ESR report from the Ministry of Finance website. For more expert guidance on this, you should seek advice from ESR filing companies in UAE like Avyanco.

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Last Step


The last step in the ESR submission process is filing the notification with the relevant authority in the UAE. Even after filing, companies need to keep annual substance return poofs.
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ESR Penalties in UAE

The penalties for failing to submit the ESR notification & report within the government’s deadline are quite steep. They are as follows

  • If you do not submit ESR Notification collectively with the necessary documents within the deadline, you will be issued a penalty of AED 20,000.
  • If you do not submit an Economic Substance Report within the period mentioned above, you will be issued a penalty of AED 50,000.
ESR Notification and Submission

Exceptions to ESR regulations in UAE

Some entities are exempted from filing ESR Report. This includes

  • Entities that are solely owned by UAE residents and are not part of a multi-national group and carry out their activities only in the UAE
  • Licensee/s are tax resident outside the UAE
  • Investment funds
  • Branches of foreign companies that subject to tax outside the UAE

Related Types Of Services We Provide

We provide a wide range of additional services to ensure your business gets all the financial support from the experts’ financial advisors.

Withholding Tax Advisory

Withholding tax is a form of income tax that an employer or payer is required to deduct from the employee’s wages, salaries, and other payments. It is usually based on the amount of money being paid out and the applicable rate set by the government. The purpose of withholding tax is to ensure that employees pay their taxes on time. It also helps reduce the burden of filing taxes for employers and employees.

A Small Good News for You

The UAE has long been known for its tax-free environment. Currently, there is no WHT in UAE, unlike other GCC countries. However, from June 1, 2023, the UAE will introduce federal corporate income tax (CIT) for certain businesses and sectors.

So if you are a business in the GCC region looking for ways to minimize taxes, look no further! Avyanco Withholding Tax solutions enable you to save money by fixing complex WHT payments in Kuwait, Oman, Qatar, and Saudi Arabia. Plus, with our experienced team of tax experts and our best-in-class customer service, you can rest assured that your taxes are handled correctly and efficiently.

How Will Avyanco Help You?

Avyanco services provide businesses with the tools and resources needed to understand and comply with CIT regulations, helping them remain compliant and avoid hefty fines. It offers country-specific tailored solutions for every business belonging to any industry. Avyanco will help you adapt to the changing landscape, so your business can continue operating smoothly in the UAE.

Permanent Establishment Advisory

As a business operating across borders, you know how difficult it is to manage your country’s complex taxes, compliance, and obligations. Avyanco understands this burden and has developed a comprehensive solution to help you understand it all. Our solution simplifies the complexity of international tax regulations, allowing you to quickly determine your tax liability in both ‘resident’ and ‘source’ countries. With our taxation services, you can save time and money while staying compliant with regulations.

Why Do You Need to Take Advantage of Permanent Advisory?

A Permanent Establishment (PE) is a taxable presence when a business has a fixed location where it regularly conducts its activities. A permanent establishment determines if you’re liable to pay domestic tax in the source and resident countries. Anyone who operates companies in two different countries has to go through this. But it’s more challenging than it sounds. Companies are required to manage both international and local laws, and these laws are very volatile and complex. Staying compliant with ever-changing tax regulations is challenging for businesses of all sizes.

How will Avyanco help you?

Helps Existing Businesses and Proposed Business Ideas with PE

At Avyanco, we provide comprehensive assessment services that help you understand the risks associated with PE and establish a more secure business structure. Our team of experts has years of experience and is highly knowledgeable in this area. Avyanco ensures your business always complies with local and international tax regulations!

Helps With All PEs Types

Avyanco provides services for all kinds of permanent establishments, such as Fixed Place, Service, Supervisory, Installation, Agency, and Virtual PE under Local Tax laws and Double Taxation Avoidance Agreements.

Helps Ramp up Operational Functions WRT Permanent Establishment

Avyanco helps you save time and money by cutting down the hours required to review paperwork and make decisions. With Avyanco, you get the assurance that your processes are compliant and up-to-date with the latest regulations.

Foreign Tax Credit Advisory

Foreign Tax Credit (FTC) allows you to receive a credit for the income taxes paid to a foreign government, cutting the taxes you owe. This credit is available to anyone with income from a foreign source, such as those working or investing abroad, for instance, freelancing on international freelancing websites.

Among all the Gulf countries (GCC), FTC only implies two countries: Kuwait and Oman. To claim the credit, you must file a tax return in the country you love. You will need to provide information about your foreign income, taxes paid, and the country where the taxes were paid.

At Avyanco, We Make Taxation Easy With Our Team of Experts

FTCs can be given even without a tax treaty with the source country. Our team provides advice and guidance on how to claim foreign tax credits (FTC) under respective country tax laws and double taxation agreements. We also advise on eligibility criteria for FTC and compliance/document obligations. With us, you can save time and money as our team of professionals is here to help you maximize your tax savings.

Advisory on Double Taxation Avoidance

Double Taxation Complexity

Taxation is a complex and challenging process, with taxpayers often subject to multiple taxes and obligations in different countries. This happens to those who operate multinational companies. DTAA is a complex issue because UAE has different Double Tax Avoidance Agreements with other Gulf countries and even countries outside GCC. As a result of UAE’s separate treaties with each government, you need tailored solutions based on the type of business you do and your source and resident countries.

How will Avyanco help you with this?

Avyanco helps you save money by reducing or eliminating taxes in the UAE and other countries. It identifies the best tax treaty for your business and gets the maximum benefit. With our expert advice and guidance, you can get all the benefits of these DTAAs while avoiding costly mistakes.
Avyanco offers the most comprehensive and accurate guide to understanding your residence status and requirements per the updated laws. Our specialist team of tax lawyers and business analysts help you determine whether you need to pay taxes and will provide you with tailored advice on how to comply. With Avyanco, you can confidently manage your taxes and residency status, save time and ensure peace of mind.
Avyanco aids with the costly problems of double taxation, allowing businesses and citizens to benefit from the free flow of goods, services, and capital and the transfer of technology across borders. With its innovative taxation approach, you can save time and money while complying with fair taxes.

Why Avyanco for ESR Filing Services in UAE?

Avyanco is one of the leading business set up consultants in Dubai. Our team consists of PR experts, lawyers, and tax consultants. We can help you understand up to what extent ESR applies to your business and offer expert advice on ESR Notification Filing.

  • On time ESR notification file
  • PR experts, lawyers, and tax consultants
  • Offer expert advice on ESR Notification Filing

Still Confused about taking your decision?

Taking a Consultation

  • Expertise

    Our ESR return submission team and filing experts are always available to lend a helping hand or advice regarding all your questions on Economic Substance Regulations in UAE.

  • Ease

    We can help ensure that your organization complies with all ESR requirements and avoids ESR penalties.

  • Clarity

    We ensure that your ESR notification file is filed before the due date, or you will incur steep ESR penalties.

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surabhi mathur
surabhi mathur
21 November 2023
The visa process for my company set up was extremely smooth.Ankit from Avyanco was the point of contact and he gave us all the information as and when we required . He was available all the time over the phone and the whole process was absolutely seamless
Saad Raza
Saad Raza
20 November 2023
Appreciation for Outstanding Service Dear, Avyanco I am writing to express my sincere gratitude for the exceptional service provided by your team. The professionalism, attention to detail, and promptness exhibited by Mr. Ankit have truly exceeded my expectations. From the initial inquiry to the finalization of the License, the entire process was seamless and stress-free.Mr. Ankit demonstrated a deep understanding of my needs and went above and beyond to ensure a smooth experience. I want to commend Avyanco for fostering a culture of excellence. The commitment to customer satisfaction is evident in every interaction. I will undoubtedly recommend your services to friends and family and look forward to engaging with your agency for any future needs. Thank you once again for setting a benchmark in customer service. Sincerely, Saad Raza
14 November 2023
Excellent service
tushar sajnani
tushar sajnani
9 November 2023
Special thanks to Gritsa, for her kind assistance and continuous follow up till all required was completed accordingly. Regards, Tushar Sajnani
lucas pagno (guga)
lucas pagno (guga)
6 November 2023
Harmisha was so attentive and answered all my questions. The services were quickly and fairly priced. Thank you so much Harmisha, If I need it in the future I'm already close with Avyanco.
vinay kumar Tiwari
vinay kumar Tiwari
3 November 2023
I had wonderful experience with Avyanco for all my Business Setup Needs . Astha was highly professional in handling my process and make it smooth . I highly recommend Avyanco for all the Business Setup needs in UAE

Popular Questions

Frequently Asked Questions
Is a company registered under free zone Subject to ESR Regulations?

Yes, it is. If the FZE company undertakes any of the listed Relevant Activities, it is subject to ESR regulations.

When should the ESR Notification and Report be submitted?

Currently, the submission of the ESR Notification and Report has been extended until the end of the year. This year it must be submitted by 31 of December 2022.

What happens if I fail to submit my ESR Notification and Report before the deadline?

If you fail to submit your ESR notification and report before the due date, you will incur ESR penalties as follows

What is the objective of ESR Compliance in UAE?

Objective of ESR is to identify Substance over Form meaning that companies conducting relevant activities must have adequate presence in the jurisdiction which they are tax resident.

What is a reportable period in ESR in UAE?

Reportable Period is the financial period of the company conducting relevant activities to which the Economic Substance Notification relates. Applicants have to include the start date & the end date of the relevant financial period.