Economic Substance Regulations (ESR)

The UAE's Economic Substance Regulations require entities carrying on certain "relevant activities" — such as banking, insurance, fund management, headquarters, shipping, holding company, intellectual property, and distribution and service-centre businesses — to demonstrate adequate substance in the UAE relative to the income they earn. The substance test has three components: being directed and managed in the UAE, conducting core income-generating activities in the UAE, and having adequate employees, expenditure, and assets there. The regulations were introduced in 2019; under Cabinet Decision No. 98 of 2024, ESR notifications and reports are not required for financial years ending after 31 December 2022, though licensees still had to comply for the 2019–2022 periods. ESR compliance documentation often doubles as evidence of commercial substance when defending treaty access or transfer pricing positions.