Notification requirements in accordance to economic substance regulation in U.A.E.

On 30 April 2019 the Economic Substance Regulation (ESR) was introduced in the UAE to align the country with the global standards to prevent Base Erosion and Profit Shifting (BEPS). According to the UAE legislation, the ESR is applicable to 9 business activities called “Relevant Activities” but all businesses licensed in the UAE shall have to submit a notification within 30 June 2020.

The ESR shall apply as of 1 January 2019 consequently the first financial year of assessments is the one starting on or after 1 January 2019.

The purpose of ESR is to assess and ensure that businesses within the UAE conducting Relevant Activities have in the UAE the necessary substance.

Relevant Activities are the followings:

  1. Banking
  2. Insurance
  3. Fund management
  4. Lease-finance
  5. Headquarters
  6. Shipping
  7. Holding company
  8. Intellectual property (IP)
  9. Distribution and service centre

For a more comprehensive background on UAE ESR you can refer to our previous article on this subject published on December 2019:


Notification vs Reporting

All businesses licensed in the UAE, including branches, partnerships, offshore companies etc. have to notify to competent authorities as provided below within and not later than 30 June 2020 the following:

  1. whether or not they carry out a “Relevant Activity”
  2. whether or not all or any part of gross income in relation of a relevant activity is subject to tax in a jurisdiction outside UAE
  3. The date of the end of its financial year.

Only those businesses that carry out a Relevant Activity shall have to submit a report for each financial year including the following information

  1. the type of Relevant Activity conducted by it.
  2. the amount and type of relevant income in respect of the Relevant Activity.
  3. the amount and type of operating expenses and assets in respect of the Relevant Activity.
  4. the location of the place of business and, if applicable, plant, property or equipment used for the Relevant Activity of the Licensee in the State.
  5. the number of full-time employees with qualifications and the number of personnel who are responsible for carrying on the Licensee’s Relevant Activity.
  6. information showing the State Core Income-Generating Activity in respect of the Relevant Activity that has been conducted.
  7. a declaration as to whether or not the Licensee satisfies the Economic Substance Test.
  8. in the case of a Relevant Activity being an Intellectual Property Business, a declaration as to whether or not it is a high-risk intellectual property business.
To whom notification and reporting have to be submitted:

Notification and Reporting have to be filed with the “Regulatory Authority” as determined by cabinet resolution n. 58 of 2019.

For the companies established in a Free Zone the competent Regulatory Authority is the authority that issued the license. (e.g. for Companies established in DMCC FZ the Regulatory Authority is DMCC).

For the company established in mainland territory the competent “Regulatory Authority” are UAE Central bank, Security and Commodities Authority, Insurance authority or Ministry of Economy depending on the activity carried out.

When notification has to be submitted:

Notifications should be made within the time determined by the competent Regulatory Authority.

According to a recent report published by the Khaleej Times, on 1 April 2020, Younis Haji Al Khouri, undersecretary at the Ministry of Finance, said: “The cut-off date of the notification to the Ministry of Finance is 30 June 2020 and that’s what was communicated to all regulators. To assure the compliance, some regulators decided to cut it short.”

As of today Ministry of Economic, which is the designated regulatory authority for many mainland companies have remained silent on the official notification deadline.

Here below are deadlines circulated by the regulatory authority of some of the Free Zones (the list is not exhaustive, there are about 40 Free Zones and consequently about 40 regulatory authorities in the UAE):

DIFC               30th June 2020

DMCC            30th June 2020

RAK ICC        30th June 2020

RAKEZ          31st May 2020 (extension of deadline should be announced)

All above mentioned it is wise to consider 30 June 2020 as the latest deadline for ESR notification for all business licensed in UAE.

When yearly reporting has to be submitted:

Businesses that according to notification carry out a Relevant Activity shall have to submit a report within twelve months from the end of the relevant financial year.

Since ESR has retroactive effect starting from 1 January 2019 this means that existing businesses with financial year ending 31 December 2019 shall have to submit the first report for the financial year within 31 December 2020


Despite lack of clarity on several aspects regarding the ESR and despite many Regulatory Authorities have yet to communicate procedures and forms to be used for notification purposes, all businesses are urgently required to self-assess whether or not are conducting a Relevant Activity in order to be ready to meet notification deadline.

On 14 April 2020 Ministry of finance published “The UAE Economic Substance Regulations Relevant Activity Guide. Please click here for more information.

This document provides useful guidance for the self -assessment, even though business models are not always easy to be allocated within or outside the relevant activities mentioned by  ESR.


Among the nine Relevant Activities targeted by ESR the following are those that may have a significant impact on several businesses:

  • Headquarter business
  • Holding company business
  • Distribution and Service Business Center

Please find below a brief description of these affected Relevant Activities.

Headquarter Business

A company is regarded as carrying on a Headquarters Business if provides services to foreign group companies, and through the provision of such services:

  1. the company takes on the responsibility for the overall success of the group; or
  2. the company is responsible for an important aspect of the overall group’s performance.

In order for a UAE company to be seen as having “taken on the responsibility for the overall or an important aspect of the overall group’s success or performance”, the services provided by the company must involve:

  • the provision of senior management;
  • the assumption or control of material risk for activities carried out by foreign group companies or substantive advice in relation to the assumption or control of such risks.

The company’s position in the group’s corporate structure is not relevant for determining whether it is engaged in a Headquarters Business. This means that the Company does not need to be the direct or ultimate parent of a group company for it to be considered as carrying out Headquarters Business.

Holding company business

A Holding Company Business is defined as a business that:

  1. a Holding Company in accordance with the law applicable to the Licensee carrying out such activity in the State.
  2. has as its primary function the acquisition and holding of shares or equitable interests in other companies; and
  3. does not carry on any other commercial activity.

Equity interests include shares in a company and interests in an incorporated partnership, as well as any other instrument which gives a beneficial ownership interest in a company.

A company which owns other forms of assets (e.g. bonds, government securities, interest in real property) will not be treated as carrying on Holding Company Business.

Holding companies that undertakes also other activity that is not a Relevant Activity are out of the scope of ESR regulation.

Distribution and Service Business Center

A company is considered engaged in a “Distribution Business” if it purchases raw materials or finished products from a foreign group company and distributes those raw materials or finished goods.

A company is considered engaged in a “Service Centre Business” if it provides consulting, administrative or other services to a foreign group company, and those services are in connection with the foreign group company’s business outside the UAE.


Failure to provide notification required by ESR and/or notification of inaccurate information are sanctioned with an administrative penalty of not less than dirhams ten thousand (AED 10,000) and not exceeding dirhams fifty thousand (AED 50,000).

Penalties are applied in the following situations:

  1. if a company fails to provide information that is required to provide under Article 8 of this Resolution.
  2. if a company provides inaccurate information to the Regulatory Authority and knows of the inaccuracy at the time the information is provided but does not inform the Regulatory Authority at that time of it discovering the inaccuracy after the information is provided to the Regulatory Authority.


At Fidinam DMCC, our consultants and back office staff are at your disposal to advise on the  Economic Substance Regulation. In particular:

  • Assessing the applicability of the ESR regulation and its extent
  • Assisting with the notification and reporting obligations with the relevant regulatory authority
  • Ensuring maintenance of proper file with minutes of board meetings
  • Restructuring business whenever required.

Stefano Menotti – Managing Director Fidinam DMCC
Matteo Pozzetti – Managing Partner Fidinam DMCC

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