Are UAE economic substance regulations still in force? Where things stand now

The Ministry of Finance announced Cabinet Decision No. 98 of 2024, amending Cabinet Decision No. 57 of 2020 on economic substance. It cancelled the requirement for companies to submit economic substance notifications and reports for financial years ending after 31 December 2022. The Ministry tied the change to the introduction of the federal corporate tax regime.

In practical terms, a company with a calendar financial year has no economic substance notification or report to submit for 2023, 2024, 2025 or 2026.

Free zones that used to chase ESR filings have updated their guidance pages over time, but older pages and service-provider reminders still circulate. If you receive a reminder for a recent year, check the financial year end it refers to against the Ministry’s cut-off before paying anyone to prepare a filing that is no longer required.

The cancellation is not retroactive. Obligations for earlier financial years still apply, and the Ministry stated that companies must still pay any penalties the Federal Tax Authority has already imposed.

So a company that missed its notification for 2021 or its report for 2022 is not cleared by the 2024 decision. If you are buying a company, or tidying up a group, check that ESR filings for 2019 to 2022 were made where required, and that any penalties were settled.

• Financial years ending on or before 31 December 2022: original ESR obligations stand.
• Financial years ending after 31 December 2022: no ESR notification or report.
• Penalties already imposed: still payable, per the Ministry.

A Dubai holding company has a financial year ending 30 June. Its year to 30 June 2022 ended before 31 December 2022, so the original ESR rules applied to it. Its year to 30 June 2023 ended after 31 December 2022, so no ESR notification or report is due for it under the amended decision.

If the company never filed for the year to June 2022 and was later assessed a penalty, that penalty remains payable. The cancellation does not refund it.

The concept did not disappear. A free zone company that wants to be a qualifying free zone person, and pay 0% on qualifying income, must maintain adequate substance in the zone. DMCC lists it alongside transfer pricing compliance and audited financial statements as a QFZP condition.

That means free zone companies still need to show real people, premises and decision-making in the UAE proportionate to their income, now as a corporate tax matter. The evidence is mostly in the books: payroll for staff based in the zone, rent for premises, and board minutes showing decisions taken here.

For QFZP purposes and general good order, keep these organised by year.

• Payroll records showing UAE-based staff and their roles.
• Lease and running costs of premises in the zone.
• Board and management meeting minutes, with location.
• Contracts showing which entity performs the core income-generating work.
• Copies of any ESR filings and assessments for years up to 2022.

HelloBooks records payroll through HelloTime journals, rent and premises costs, and lets you attach leases, minutes and contracts to the relevant accounts or transactions. Ask the AI agent “what did we spend on UAE staff and premises last year?” and it totals the figures from the ledger, with links to the documents.

Whether your substance is adequate is a judgement for you and your tax agent. HelloBooks keeps the records that support it. For a substance report layout grouped the way your adviser wants, email hello@hellobooks.ai.