ESR in the UAE in 2026: Is Economic Substance Reporting Still Required?

Short answer on ESR in the UAE in 2026: you no longer file economic substance notifications or reports for financial years starting on or after 1 January 2023. But the regime has not disappeared for everyone. Obligations for 2019 to 2022 still stand, the Federal Tax Authority (FTA) can still review those years, and substance has returned through corporate tax for free zone companies that want the 0% rate. Here is what still applies and what you can stop worrying about.

What changed: Cabinet Decision No. 98 of 2024

In 2024 the UAE Cabinet issued Decision No. 98 of 2024, amending the Economic Substance Regulations in Cabinet Decision No. 57 of 2020. The effect, as widely read by advisers, is:

• the ESR does not apply to financial years starting on or after 1 January 2023
• the ESR continues to apply to financial years from 1 January 2019 to 31 December 2022, the "ESR period"
• administrative penalties imposed for periods after the ESR period are to be cancelled, and amounts collected refunded

The reasoning is straightforward. Federal corporate tax applies to financial years starting on or after 1 June 2023, and it brings its own substance tests. Running two overlapping regimes made little sense.

Which financial years are in and out?

A non-calendar year that straddles 31 December 2022 is the grey area. Advisers including PwC read the Decision as taking such a year outside ESR. If you have such a year, keep a file note of the position you have taken.

What you still need to do for 2019 to 2022

File anything outstanding

If your company was a licensee carrying on a relevant activity in the ESR period and did not file its notification or report, it should do so now. Relevant activities included banking, insurance, investment fund management, lease-finance, headquarters, shipping, holding company, intellectual property, and distribution and service centre business.

Keep records available for review

The FTA has six years to review whether a licensee met the economic substance test. On PwC's reading, a reportable period ended 31 December 2020 can be reviewed until 31 December 2026, and the 2021 and 2022 periods until the end of 2027 and 2028. Keep board minutes, employee records, lease agreements and evidence of core income-generating activities for those years, along with your ESR portal access.

Check for penalty refunds

If you paid an ESR penalty for a period starting on or after 1 January 2023, you may be entitled to a refund under the Decision. Check your FTA and Ministry of Finance correspondence and request it.

Substance has not gone away: corporate tax

The end of ESR reporting does not mean substance no longer matters.

Qualifying Free Zone Persons

A free zone company that wants the 0% corporate tax rate on qualifying income must maintain adequate substance in the free zone. That means carrying out its core income-generating activities there, with adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure. It is the same idea as ESR, now tied directly to your tax rate.

Tax residency and treaty benefits

To obtain a UAE tax residency certificate for treaty purposes, a company may need to show effective management and control in the UAE. Foreign tax authorities also look for real substance before granting treaty relief.

Management and control of foreign companies

A foreign company that is effectively managed and controlled from the UAE can be UAE tax resident for corporate tax. Board meetings, decision-making and senior staff location all matter.

Other compliance that remains

ESR was one of several transparency regimes. These continue:

• Ultimate beneficial owner (UBO) registers and filings with your licensing authority
• AML/CFT obligations for designated non-financial businesses and professions, including goAML registration
• Common Reporting Standard and FATCA reporting for financial institutions
• Country-by-country reporting for large multinational groups

What to do now

1. Confirm whether you had any ESR period filings outstanding and file them.
2. Archive 2019 to 2022 substance evidence where you can retrieve it quickly.
3. Request a refund of any post-2022 ESR penalty you paid.
4. If you are a free zone company, test your substance against the QFZP conditions for 2026.
5. Review your UBO, AML and other transparency filings for gaps.

How GULF CONSULT helps

Our compliance and risk team closes out legacy ESR filings, prepares review files and handles UBO and AML obligations. Our corporate tax advisers assess free zone substance against the QFZP conditions. For the beneficial ownership rules, read our UBO declaration guide.

Talk to GULF CONSULT

Not sure whether you have open ESR years or enough free zone substance? Book a free 30-minute consultation with GULF CONSULT. Email [email protected], call +971 58 600 4833 or message us on WhatsApp.