Key Takeaways (2026)
- ✓ ESR is discontinued for financial years ending after 31 December 2022, under Cabinet Decision No. 98 of 2024.
- ✓ If your financial year starts on or after 1 January 2023, you file no ESR Notification and no ESR Report.
- ✓ Penalties for post-2022 periods are cancelled, and penalties already paid for those periods are refundable by the FTA.
- ✓ ESR still applies to the 2019–2022 window — if you never filed, file now and keep records for 6 years.
- ✓ The substance idea didn’t disappear: free-zone companies claiming the 0% corporate tax rate (QFZP) must still prove adequate substance.
Is the Economic Substance Report still required in the UAE?
No — for financial years ending after 31 December 2022, UAE businesses no longer file an Economic Substance Notification or an Economic Substance Report. In September 2024, the Ministry of Finance issued Cabinet Decision No. 98 of 2024, which amended the earlier economic substance rules (Cabinet Decision No. 57 of 2020) and limited the entire regime to financial years from 1 January 2019 to 31 December 2022. So if your accounting period begins on or after 1 January 2023, there is nothing to file and no substance test to pass under ESR.
This is a genuine change in the law, not a filing extension. If you have been treating the Economic Substance Report as an annual obligation, that guidance is now out of date. The two things that still matter are covered below: any unfinished business for the 2019–2022 period, and the substance requirement that has moved into the UAE Corporate Tax regime.
What changed under Cabinet Decision No. 98 of 2024?
Cabinet Decision No. 98 of 2024 (published in the Official Gazette on 16 September 2024) did three things: it closed the ESR filing regime for financial years ending after 31 December 2022, it cancelled the penalties attached to those later periods, and it required the Federal Tax Authority to refund penalties already paid for them. The Ministry of Finance framed this as freeing businesses to focus on the new corporate tax system, which now carries the same policy purpose.
| Before (FY 2019–2022) | Now (FY ending after 31 Dec 2022) | |
|---|---|---|
| ESR Notification | Required within 6 months of year-end | Not required |
| ESR Report | Required within 12 months of year-end (if a Relevant Activity earned income) | Not required |
| Substance test | Had to be met and evidenced | Not applicable under ESR |
| Penalties | Applied for missed filings / failed test | Abolished; paid penalties refundable |
| Scope | 1 Jan 2019 – 31 Dec 2022 | ESR closed for FY 2023 onward |
A quick example. A company with a financial year running 1 July 2022 to 30 June 2023 has a year ending after 31 December 2022 — so it has no ESR Notification or Report to file for that year. A company whose year ran 1 January 2022 to 31 December 2022 is inside the ESR window and still needs to have complied for that period.
💬 Not sure if any ESR obligation is left?
Send us your financial year-end and business activity on WhatsApp. We’ll confirm in minutes whether you’re fully clear or have a 2019–2022 filing to close.
Do you still owe anything for the 2019–2022 period?
Possibly — the ESR obligation for financial years from 1 January 2019 to 31 December 2022 has not gone away. If your business was a “Licensee” carrying out a Relevant Activity during that window and it never filed the Notification (or the Report, where income was earned), that filing is still outstanding and should be completed. The Federal Tax Authority retains the ability to review compliance for the historical period, and several advisers expect focused audit activity precisely because the window is now fixed and closed.
Three practical points for the historical period:
- File any missing 2019–2022 returns. Late is better than never — an unfiled Notification or Report for those years is still a live exposure.
- Retain your ESR records for six years from the end of each reportable period, including access to your portal submissions and the evidence behind them.
- Check for a penalty refund. If you paid a penalty for a period ending after 31 December 2022, that penalty is cancelled and refundable through the FTA / Ministry of Finance process.
What was ESR, and who did it apply to?
The Economic Substance Regulations were introduced in 2019 to meet the UAE’s commitments under the OECD’s framework on base erosion and profit shifting and to satisfy the EU’s review of the UAE tax framework. The aim was to stop companies booking profits in the UAE without a real presence here. ESR applied only to entities — mainland, free zone or financial free zone — that carried out one or more of nine defined “Relevant Activities.”
| The nine ESR Relevant Activities | Typical example |
|---|---|
| Banking Business | Deposit-taking and lending institutions |
| Insurance Business | Insurance, reinsurance and captive arrangements |
| Investment Fund Management | Managing funds or investments for others |
| Lease-Finance Business | Providing credit or finance leases, incl. intra-group loans |
| Headquarters Business | Managing and providing services to group companies |
| Shipping Business | Owning, operating or managing ships |
| Holding Company Business | Sole function of holding shares, earning dividends/gains |
| Intellectual Property Business | Holding or exploiting patents, trademarks and other IP |
| Distribution & Service Centre | Buying from / providing services to foreign group companies |
A business that did not carry out a Relevant Activity still had to submit a Notification stating that fact — but did not need a full Report or substance test. Holding companies and intellectual property businesses attracted the closest scrutiny, because they were the structures most often used as shells. If your only activity was, say, retail trading to third-party customers, you were generally outside scope even though the Notification still had to be lodged.
What were the ESR deadlines and penalties?
During the 2019–2022 window, compliance was a two-step process tied to your financial year-end: an ESR Notification within six months, and — only where a Relevant Activity earned income — a full ESR Report within twelve months. Passing the Economic Substance Test meant showing the activity was directed and managed in the UAE, that core income-generating activities happened in the UAE, and that there were adequate qualified employees, premises and expenditure in the UAE.
| Failure (2019–2022 period) | Administrative penalty |
|---|---|
| Failure to submit the ESR Notification | AED 20,000 |
| Failure to submit the ESR Report or provide accurate information | AED 50,000 |
| Failure to meet the Economic Substance Test (first year) | AED 50,000 |
| Repeated failure (second consecutive year) | Escalated penalty, plus possible licence suspension / non-renewal and information exchange with foreign tax authorities |
These penalties only ever applied to the 2019–2022 period. For financial years ending after 31 December 2022 they no longer exist, which is exactly why any penalty paid for a later period is now refundable. If you are facing a historical ESR penalty for the in-scope window, it is worth reviewing whether it was correctly imposed before paying.
Where did “economic substance” go? Into corporate tax
The substance principle didn’t vanish — it moved into the UAE Corporate Tax regime. ESR became largely redundant once corporate tax arrived, because the corporate tax law pursues the same goal through its own rules. The clearest example is the free zone: a company that wants to keep the 0% rate as a Qualifying Free Zone Person (QFZP) must still demonstrate adequate substance in the free zone.
For a QFZP, “adequate substance” means the entity undertakes its core income-generating activities in the free zone, and maintains adequate assets, an adequate number of qualified employees, and an adequate level of operating expenditure there. This is now assessed as part of your corporate tax position and reflected in the return you submit through EmaraTax — not through a separate ESR portal. If you are weighing this up, our related guides on claiming the 0% corporate tax rate as a Qualifying Free Zone Person and how corporate tax is calculated for a free zone person walk through the detail.
In practice, Fastlane’s UAE corporate tax filing and free-zone QFZP advisory confirms whether your entity meets the substance test and files it correctly, so the same evidence you once gathered for ESR — board oversight, UAE headcount, premises and expenditure — now supports your corporate tax outcome instead. For the wider picture, see our general guide to corporate tax for UAE businesses.
What should UAE businesses do now? (2026 checklist)
For most companies the message is simple: stop treating ESR as a live annual filing, close out any historical gap, and put your substance effort where it now counts — corporate tax. Here is the short version.
✅ Your 2026 ESR action checklist
- 1. Confirm your financial year-end. If your year starts on or after 1 January 2023, you have no ESR filing to make — full stop.
- 2. Check the 2019–2022 window. If you were a Licensee with a Relevant Activity and didn’t file the Notification or Report, file it now.
- 3. Keep ESR records for six years from the end of each reportable period — the FTA can still review the historical years.
- 4. Recover any post-2022 penalty. If you paid an ESR penalty for a period ending after 31 December 2022, check your eligibility for an FTA refund.
- 5. Free-zone and on the 0% rate? Shift your substance focus to the corporate tax QFZP test — document core activity, employees, premises and expenditure, and declare it in your CT return.
- 6. Ignore stale prompts. Any reminder or third-party “ESR filing” nudge that assumes FY2023 onward is in scope is out of date.
The headline is good news: one annual compliance burden has been lifted for the vast majority of UAE businesses. The care point is that “no more ESR” is not the same as “no more substance.” If you run a free zone entity claiming the 0% rate, the substance you need to show is now part of your corporate tax return — and getting that right is what actually protects the tax benefit.