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Annual notification filing of ESR​

The economic substance regulations (ESR), applicable from 2019 for all United Arab Emirates (UAE) legal entities with a commercial license, prescribe that quorate board of directors meetings are frequently held in the UAE. The international travel restrictions implemented as a measure to curb the COVID 19 outbreak mean that international groups with entities in the UAE should closely consider their corporate governance obligations in relation to the ESR and generally to potential overseas tax implications.

Economic substance regulations

The UAE introduced the ESR in April 2019, as a result of which the country was successfully removed from the European Union’s blacklist of non-cooperative jurisdictions. Under the ESR, all UAE companies, branches and partnerships with a trade, commercial or business license (so-called Licensees) must report whether they perform any geographically mobile activities. In the affirmative, the Licensee must comply with the new economic substance requirements. 

Directed and managed requirement

One of the economic substance requirements for a Licensee performing ESR related activities, is that its direction and management must take place in the UAE. More specifically, Licensees must ensure that:

  • the board of directors have quorate meetings in the UAE on frequent occasions, where directors are physically present;
  • in particular, strategic decisions must be taken by the board of directors during meetings held in the UAE;
  • the meetings are recorded in written minutes which should be signed;
  • the directors have the necessary knowledge and experience to carry out the functions of the board; and
  • the records of all meetings of the board are kept within the UAE.

As per the Economic Substance Regulations (ESR), all Licensees are required to notify the Regulatory Authority (typically the license issuing authority) annually on the following aspects: 

  • Whether or not the Licensee is carrying on a Relevant Activity 
  • If the Licensee is carrying on a Relevant Activity, whether or not all or any part of the Licensee’s gross income in relation to the Relevant Activity is subject to tax in a jurisdiction outside the United Arab Emirates (UAE) 
  • The date of the end of the Licensee’s Financial Year (Accounting Reference Period)

Notifications should be made at the time specified by the Regulatory Authority and in the form and the manner approved by the Regulatory Authority.


Detailed below are the latest economic substance notification deadlines. Some of these deadlines have been amended (DIFC & ADGM) and others recently announced. 

  • Abu Dhabi Global Market (ADGM) – The 31 March 2020 notification deadline previously advised is no longer applicable. A new deadline date has not yet been announced. Guidance on the filing process is available. 
  • Dubai Airport Freezone Authority (DAFZA) – The notification deadline for licensees registered at DAFZA will be 3 May 2020. Guidance on the filing process is available. 
  • Dubai International Financial Centre (DIFC) – The 31 March 2020 notification deadline previously advised is no longer applicable. A new deadline date has not yet been announced, however DIFC state that the notification must be filed during Quarter 2 2020 (before 30 June 2020). Guidance on the filing process is available.
  • Dubai Multi Commodities Centre (DMCC) – The notification deadline for all licensees registered at DMCC is 30 June 2020. Guidance on the filing process is expected during April, 2020. 
  • Dubai Silicon Oasis Authority (DSO) – The notification deadline for entities licensed in DSO was 31 March 2020. Guidance on the filing process is available.
  • Ras Al Khaimah International Corporate Centre (RAKICC) – The notification deadline for licensees registered at RAKICC will be 30 June 2020. Guidance on the filing process is available.

Furthermore and according to a recent report in the Khaleej Times, 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.”

Noting the above comments and in the absence of information on the notification timeline and process by the remaining Regulatory Authorities, it would be prudent for businesses licensed there to work towards filing a notification by 30 June 2020 at the latest.

Penalties for failing to notify the Regulatory Authority are between AED10,000 and AED50,000. Other penalties apply where Licensees fail to provide accurate or complete information and demonstrate sufficient economic substance in the UAE.

The Ministry of Economy, which is the designated regulatory authority for many of PRO Partner Group’s clients, have remained silent on the official notification deadline. Nevertheless, we recommend that businesses work towards the deadline of 30 June 2020.

The delay to implementation of the ESR presents businesses with an opportunity to review their existing income-related activities to determine whether they result in the entity falling within the scope of the ESR. For guidance on this assessment process, we recommend you consult the flowchart produced by the Ministry of Finance and the Ministry of Finance’s summary of Relevant Activities.

COVID-19 impact on Economic Substance

In light of travel restrictions and social distancing measures imposed as a result of the crisis, international groups with entities in the UAE are at risk of breaching the directed and managed substance requirement if board meetings are held or decisions taken without careful planning.

Where board meetings need to be held during the crisis period when overseas based directors cannot travel and attend in person, the resulting risks of non-compliance need to be carefully managed.

In the absence of a relaxation of the board meeting requirements during this period by the relevant authorities, entities should take steps to document the position for the applicable periods of time affected.

On a wider note, international groups with a legal presence in other no or only nominal tax jurisdictions (e.g. Cayman Islands, British Virgin Islands, Jersey etc.), which have introduced similar substance rules, should consider the impact travel restrictions may have on their ability to comply with the requirements in these jurisdictions.

The form for notification and process for lodgement remains unclear in several jurisdictions in the UAE. It is hoped that as the current COVID-19 situation stabilises, the relevant authorities will have more availability to issue guidance on these points.

Alya Auditors will continue to monitor the announcements closely and keep you updated. In the meantime, we would be pleased to provide you with guidance in relation to conducting the ESR assessment and refer you onto ESR assessment experts if so required.

For more information please contact a member of the team on; telephone our Dubai office on +971 (0)4876 9377 .Alternatively, you can email me directly at or call me on +971 (0)52 4754 007.

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