In a significant development for businesses in the UAE, particularly multinationals, authorities have announced that Economic Substance Rules (ESR) filings will no longer be required. This shift comes as the UAE has implemented a full corporate tax structure, rendering the previous ESR framework redundant.
Previously, companies engaged in nine ‘relevant activities’—including banking, insurance, shipping, lease finance, investment fund management, and holding companies—were obligated to file ESR reports to prove their ‘adequate economic presence’ in the UAE. Failure to do so resulted in hefty penalties, ranging from Dh20,000 for missed notifications to Dh50,000 for not submitting economic substance reports.
However, with the introduction of corporate tax (CT) rules, which include a 15% minimum tax on global multinational corporations (MNCs), the ESR compliance requirements have been absorbed into the broader corporate tax framework. This means businesses no longer need to file notifications, prove economic substance through office space, staff, or board presence, or submit audit reports at the end of the year.
Furthermore, as part of the new directive, penalties imposed for ESR violations during 2023 will be refunded, offering additional relief to businesses. The move has been praised as a proactive step by the UAE government to boost investor confidence and simplify compliance for companies operating in the region.
