ESR Assessment, Notification and Reporting


In accordance with Cabinet of Ministers Resolution No.31 of 2019, the Economic Substance Regulation (the “Regulations”) was implemented for certain businesses on April 30, 2019 as part of the UAE’s commitment to the OECD’s Inclusive Framework. On August 10, 2020, the Cabinet of Ministers Resolution No. (57) of 2020 amended the Regulations, and on August 19, 2020, the Ministerial Decision No. (100) of 2020 modified the Guidance.

All Licensees (registered with various licensing/regulating authorities in the UAE, such as DMCC, JAFZA, DAFZA, RAKEZ, DDA, Ajman Free Zone, etc.) who are found to be engaging in any of the “ESR Relevant Activity” listed below are subject to the regulations, which require them to submit an ESR notification and/or annual report through the Ministry of Finance (MOF) portal and to show that they have a sufficient level of economic substance in the UAE

All Onshore and Free Zone Companies in the UAE are required to comply with these Regulations annually and are therefore mandated to do so.

ESR Relevant Activities are

Each Licensee must take a content-over-form approach when deciding whether they are engaging in pertinent activities, which are not just limited to those listed in the Trade/Commercial License.

If your company is engaging in one of the aforementioned ESR-relevant activities, you must ensure that you comply with the ESR’s requirements for sufficient economic substance and reporting.

Every licence holder who engages in pertinent activities is required to submit an annual report and an ESR notification in the format and manner specified by the Authorities. Failure to notify the authorities will result in fines of AED 20,000, while failure to submit the ESR Annual Report by the deadline specified by the regulations would result in fines of AED 50,000. Penalties for persistent non-compliance might be as high as AED 400,000. When licensees fail to produce correct or complete information and establish sufficient economic substance in the UAE, additional sanctions such as suspension, withdrawal, and non-renewal of trade/company licences will also be applicable.

Virtue can help you manage economic substance standards and can advise you on any non-compliance concerns for your company

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    It is crucial to comprehend the distinction between obtaining a license with a visa quota and acquiring residency in the UAE. A license with a visa quota solely covers the expenses related to a business license and visa quota, with the possibility of including a Flexi office lease in certain Freezones. However, possessing a visa quota does not automatically grant you UAE residency; additional steps must be completed. If you wish to apply for a partner/investor visa, there are supplementary costs involved. These include obtaining an immigration card, registering for E-channel (NE Only), and paying fees for visa, visa processing, medical examination and Emirates ID typing. To effectively plan your business expenses, it is imperative to ask the right questions from the beginning to avoid surprises and hidden costs.