Abolished for current years — but historical exposure is real
Economic Substance Regulations: What Still Applies
ESR notification and reporting is no longer required for financial years ending after 31 December 2022 — the UAE cancelled the ongoing filing regime in October 2024. What remains very much alive is exposure for financial years 2019 through 2022, which the FTA can still audit for years to come.
Cabinet Decision No. 98 of 2024 — confirmed on mof.gov.ae
Key facts
| Current filing requirement | None — no ESR notification or report required for FY ending after 31 Dec 2022 |
| Historical period still in scope | Financial years 1 January 2019 to 31 December 2022 |
| Legal basis for cancellation | Cabinet Decision No. 98 of 2024, confirmed by the Ministry of Finance on 14 October 2024 |
| FTA audit window | Up to 6 years from the close of each historical financial year — FY2022 assessments possible until roughly 2028 |
| Penalties already paid for FY2023+ | Cancelled and refundable — the FTA will return amounts collected for periods outside the ESR's remaining scope |
What this actually means for your business
The UAE introduced Economic Substance Regulations in 2019 to satisfy international commitments under the OECD's BEPS framework, requiring entities conducting one of nine defined "relevant activities" — holding companies, IP businesses, distribution and service centres, financing and leasing, and others — to file an annual notification and, where relevant income was earned, a full substance report.
With the UAE's federal Corporate Tax regime now in force from financial year 2023 onward, and its own substance-related conditions built directly into the Qualifying Free Zone Person framework, the government concluded a separate, parallel ESR system was redundant. Cabinet Decision No. 98 of 2024 cancelled ESR notification and reporting obligations for every financial year ending after 31 December 2022 — in practice, this means no UAE business has needed to file a standalone ESR notification or report since that cutoff.
This is not retroactive amnesty. Obligations for financial years 2019 through 2022 remain fully enforceable, and the FTA retains complete authority to audit those historical years, assess penalties for a missed notification or report, or challenge a self-assessed substance position — within a window that can extend six years from each year's close. A business that never properly assessed its ESR position for, say, FY2021 could still face a genuine audit finding today.
Is this actually relevant to you?
- Your business operated in the UAE at any point between 2019 and 2022 and carried out an activity that might qualify as a defined "relevant activity"
- You're not certain whether ESR notifications or reports were correctly filed for that historical period
- You've received an FTA query or audit notice referencing a pre-2023 financial year
- You paid an ESR penalty for a financial year ending after 31 December 2022 and haven't checked whether you're owed a refund
- You want confirmation that your business genuinely has no ongoing ESR obligation, in writing, rather than just assuming
Scope of work
Substance questions now also arise under corporate tax, particularly for Qualifying Free Zone Persons and holding companies. See the compliance calendar for current deadlines.
What businesses get wrong about the 2024 change
- Assuming the 2024 cancellation wiped out historical exposure too — it didn't. FY2019–2022 obligations and penalties remain fully enforceable, and audits are still live for years to come.
- Continuing to budget for and file annual ESR notifications out of habit or outdated advice, when no current-year filing is actually required.
- Not checking whether a penalty paid for a post-2022 financial year qualifies for the automatic cancellation and refund the Cabinet Decision provides for.
Related compliance services
Regulatory filings and controls kept current alongside your tax obligations.
Related guides from our team
Practical explanations of the rules behind this service, written by our chartered accountants.
Common questions
Do I still need to file an ESR notification this year?+
No — for any financial year ending after 31 December 2022, no ESR notification or report is required. This was cancelled by Cabinet Decision No. 98 of 2024, confirmed by the Ministry of Finance in October 2024.
Does this mean ESR is completely gone?+
Not entirely — the regulations still apply to financial years from 1 January 2019 to 31 December 2022. If your business carried out a relevant activity during that historical window, those obligations and any associated penalties remain fully enforceable.
Can the FTA still audit us for old ESR periods?+
Yes — the FTA's audit window can extend up to six years from the close of each financial year, meaning a FY2022 position could technically still be assessed as late as 2028. Historical non-compliance hasn't disappeared just because current filing has.
We paid an ESR penalty for FY2023 — can we get it back?+
Likely yes. Cabinet Decision No. 98 of 2024 specifically cancels penalties for financial years ending after 31 December 2022, and the FTA refunds amounts already collected for those periods — worth checking if this applies to you.
What replaced ESR's substance requirement?+
UAE Corporate Tax's Qualifying Free Zone Person framework now carries its own substance test for free zone entities claiming the 0% rate — see our Free Zone Corporate Tax (QFZP) page for how that works.
How do I know if my business was in scope for the 2019–2022 period?+
ESR applied to entities conducting one of nine defined "relevant activities" — holding company, IP, financing and leasing, distribution and service centre, and others — and earning income from that activity during those specific years. We'll assess your actual historical activity against those definitions.
Not sure where you stand on ESR — current or historical?
Tell us your UAE entity's activity history since 2019 — we'll confirm in writing whether you have any live exposure, and whether you're owed a refund.