Although the UAE has repealed Economic Substance Regulations for financial years starting from 2023 onwards, ESR itself has not disappeared in principle. Here is why it still matters for your business.
Recently, a client asked us about ESR—this is the basic answer you need to understand.
Although the UAE has repealed Economic Substance Regulations for financial years starting from 2023 onwards, ESR itself has not disappeared in principle. Here's why it still matters for your business.
The Reality Behind the Repeal
What most people don't realise is that the UAE still maintains an internal ESR oversight structure.
Ministerial Decision No. 239 of 2023, issued by the Minister of State for Financial Affairs, did not eliminate ESR. Instead, it reorganised and strengthened the national ESR Committee.
This committee includes representatives from:
- Ministry of Finance
- Ministry of Economy
- Central Bank
- Securities & Commodities Authority
- Federal Tax Authority
- Every major free zone including DMCC, ADGM, DIFC, IFZA, Meydan, JAFZA, DAFZA, SAIF, Hamriyah
Almost forty entities in total continue to coordinate on substance matters.
Active Oversight Continues
This committee continues to meet monthly and carries out several critical functions:
- Coordinate ESR implementation across all regulators
- Manage information-sharing frameworks
- Respond to OECD and EU inquiries
- Ensure free zones continue monitoring substance standards in practice
Even though companies no longer file ESR reports, the UAE government remains accountable internationally and continues monitoring whether businesses have real economic presence.
Why This Still Matters for Companies
For clients operating regionally or globally, ESR remains a core consideration in structuring.
Many jurisdictions still require entities to demonstrate real substance. The UAE now embeds these same principles inside Corporate Tax, especially for free zone companies wishing to maintain the 0% rate.
These companies must still demonstrate that:
- Management genuinely occurs in the UAE
- Staff are physically present and working locally
- Core income-generating activities take place within the jurisdiction
Regulators continue to rely on the original ESR substance tests as their benchmark.
Historical Gaps & Future Risks
ESR filings were mandatory from 2019 to 2022, and many businesses still have gaps or incorrect submissions that may expose them to penalties.
Even though public ESR filings have stopped:
- Free zones continue to evaluate substance
- Banks continue to request evidence of substance
- The UAE continues to demonstrate compliance to global bodies such as the OECD and EU
The Bigger Picture
ESR ties directly into several interconnected compliance areas:
- Corporate Tax
- Tax residency
- Place of Effective Management (POEM)
- Holding-company structuring
- Anti-avoidance rules
Understanding substance requirements helps ensure companies remain compliant, retain tax incentives, and avoid unnecessary cross-border risks—especially for groups operating both inside and outside the UAE.
Need ESR Guidance?
At Augment Consulting and Accounting, we help businesses understand how substance requirements apply to their specific structure and ensure they remain compliant across all jurisdictions where they operate.