Economic Substance Regulations (ESR) were introduced in the UAE in March 2019 by virtue of Cabinet Resolution No. 31 of 2019 (Cabinet Resolution). The ESR apply to all companies based in the UAE (onshore and free zones), including branches and apply to financial years starting on or after 1 January 2019.

The UAE government has delegated the responsibility to regulate and administer the ESR to the various onshore and free zone authorities (such as the Department of Economic Development and Ministry of Economy in the relevant emirates for onshore entities and the respective free zone authorities for entities located in the free zones in the UAE) (Regulators). The relevant Regulators are expected to issue detailed guidance and procedures for their Licensees to comply with the ESR. When a Licensee is carrying out a Relevant Activity (as defined in the Cabinet Resolution and the guidance that the UAE Ministry of Finance (MoF) issued by virtue of the Ministerial Decision No. 215 of 2019: Directives for the implementation of the Economic Substance Regulations) it is required to notify and submit the report to its Regulator. We refer to our previous alerts for the Relevant Activities that are within the scope of the ESR and the specific guidance on ESR published by the MoF.

The deadline, format and process for submitting the notification should be set by the Regulator. Although there is no official communication on this point, it appears that Regulators have been instructed by the MoF to request its Licensees to submit the notification by 30 June 2020. Some Regulators have set earlier deadlines, for example the Dubai Airport Free Zone Authority (initially on 3 May 2020 and recently extended to 31 May 2020), Dubai Aviation City Corporation at Dubai World Central (on 7 June 2020) and Dubai International Financial Centre (on 12 June 2020). There are still a number of Regulators that have not published an official date or procedure.

Based on the template prepared by the MoF, the following information should at least be included in the notification:The type of Relevant Activity conducted by the Licensee (if any);

  • Whether income is earned from this activity and whether this income has been subject to tax outside the UAE; and
  • Whether the Licensee is a tax resident outside the UAE, and if so where.

Non-compliance with the obligation to file a notification before the deadline or filing of an incorrect notification is subject to penalties ranging from AED 10,000 to AED 50,000.

For further information, please feel free to contact one of the lawyers below or your usual Baker McKenzie contact. 


Reggie Mezu is a Senior Counsel in Baker McKenzie's Tax Practice Group based in Dubai. He specialises in corporate tax and has practiced tax for nearly 30 years, including in the UAE for 15 years. Reggie advises on corporate direct and indirect tax matters, with particular focus on cross-border and transactional work across the Middle East and Africa. He concentrates on tax aspects of corporate and business structures and also regularly participates in various initiatives aimed at enhancing the tax regimes of developing countries.


Bastiaan Moossdorff is a Senior VAT Adviser in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. He specializes in indirect tax and has practiced indirect tax for more than 7 years in the Netherlands, the UK, the UAE and the KSA. Bastiaan has multi-jurisdictional and multi-disciplinary academic qualifications in law, accountancy and taxation.


Rony Eid is a counsel in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. Rony has over 19 years' experience in the Middle East, including 10 years in the UAE. He is experienced in corporate and commercial transactions, foreign direct investment, mergers and acquisitions, corporate reorganizations, regulatory matters, local laws and litigation. Rony also advises on the incorporation and structuring of companies in the UAE including within the free zones.

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