19 Jul 2020

Economic Substance Regulations – All UAE companies should submit a Notification

Authored by: Marwan Abdel Hamid


The UAE Cabinet of Ministers enacted Resolution No. 31 of 2019 Concerning Economic Substance Regulations in the UAE (ESR) on 30 April 2019. Guidance that provides further clarity on the application of the ESR was issued on 11 September 2019.

The ESR creates the basis for the UAE to meet the requirements of the European Union Code of Conduct Group in respect of economic substance and the OECD Inclusive Framework, and to ensure that companies and partnerships incorporated or registered in the UAE that carry out certain activities are not used to artificially attract profits that are not commensurate with the economic activity undertaken by them in the UAE.

The ESR requires companies and partnerships carrying out certain activities (as detailed below), including those companies and partnerships incorporated or registered “onshore” or in a free zone in the UAE (the Licensees), to establish that they have real and actual substance in the UAE by satisfying an “economic substance” assessment in relation to any income generating “relevant activity”.

The ESR provides the following list of activities to which the substance requirements apply if carried out by a Licensee:

  1. banking;
  1. insurance;
  1. Investment fund management;
  1. leasing finance;
  1. headquarters;
  1. shipping;
  1. holding company;
  1. intellectual property; and
  1. distribution and service centre.

(together the Relevant Activities)


The relevant authorities regulating UAE companies (Regulatory Authorities) recently communicated that all UAE companies registered with the relevant Regulatory Authority are required - in accordance with the ESR - to complete and file with their Regulatory Authority, an Economic Substance Regulation Notification (Notification) by no later than 30 June 2020, which deadline has now passed.

All UAE companies should still complete and submit the Notification, notwithstanding that such UAE company may not carry out the Relevant Activities. In that respect, and based on our informal discussions with various Regulatory Authorities, we recommend that each UAE company, even if it does not carry out the Relevant Activities, and therefore, is unlikely to be subject to the ESR, should still complete and submit the Notification, irrespective of the fact that the deadline has passed, to mitigate any undue consequences.


The ESR provide that a fine not less than ten thousand dirhams (AED 10,000) and not more than fifty thousand dirhams (AED 50,000) shall be imposed to the extent that the ESR requirements are not fulfilled for any fiscal year.

The ESR also provide that a fine not less than fifty thousand dirhams (AED 50,000) and not more than three hundred thousand dirhams (AED 300,000) shall be imposed, in the fiscal year directly following the one for which the notice has been issued (Additional Fiscal Year), if the ESR requirements remain unfulfilled.


Companies should complete and submit the Notification with the relevant Regulatory Authority. We are available to assist your company in assessing whether the company has carried out any Relevant Activity during the relevant financial period, and to appropriately complete and file the Notification with the relevant Regulatory Authority to avoid any penalty being imposed. Please contact Ahmad Sergieh and Marwan Abdel Hamid for further information.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.