A client forwarded us an email in August offering to file their 2025 ESR report before the deadline. There is no 2025 ESR report and there is no deadline. The regulations were switched off for financial years ending after 31 December 2022, but substance itself did not go away. It moved into the corporate tax regime, where the consequences of getting it wrong are larger.
A holding company client forwarded us an email in August. A provider was offering to "complete your 2025 ESR filing before the deadline" and had helpfully attached a checklist. There is no 2025 ESR filing. There is no deadline. The Economic Substance Regulations stopped applying to any financial year ending after 31 December 2022, and the Ministry of Finance said so publicly. The email still looked entirely plausible, which is the problem.
I still get asked this question most weeks, and the people asking are not careless. They have searched "esr compliance uae" and found page after page written in 2021 that nobody has taken down.
Why the question refuses to die
Three things keep the ESR alive in people's heads.
The first is the internet. Most of the top results for "economic substance regulations UAE" were written when the regime was new, and they were good articles at the time. They explain the nine relevant activities, the notification deadline of six months after year end, the report deadline of twelve months. None of that is wrong for a 2021 financial year. All of it is irrelevant for a 2025 one, and very few of those pages carry a note saying so.
The second is the market. Some corporate service providers built a product line around ESR assessments and filings, and a product line does not vanish just because the regulation behind it did. We have seen renewal invoices for "annual ESR compliance" issued in 2025 for companies with December year ends.
The third is the Ministry of Finance portal, which still exists because it has to. Filings for financial years ending on or before 31 December 2022 remain enforceable, penalties issued for those years are still collectable, and appeals lodged in 2023 and 2024 were still being processed well into last year. If you log in, the system will show you a live account with a history. It does not show you a banner saying the regime is over.
What actually ended
Cabinet Resolution 57 of 2020 set out the regime most people remember. If a UAE entity, including one in DIFC or ADGM, carried on a relevant activity (banking, insurance, investment fund management, lease-finance, headquarters, shipping, holding company, intellectual property, distribution and service centre) it had to file a notification with its regulatory authority, and if it earned income from that activity it had to file an economic substance report demonstrating that the core income-generating activity was actually happening in the UAE. Miss the notification or the report and fixed penalties followed, with the Federal Tax Authority acting as the assessing authority.
Cabinet Decision 98 of 2024 amended that resolution so that the regulations cease to apply to any financial year ending after 31 December 2022. The Ministry of Finance announced the withdrawal, and the large firms and ADGM published confirmations shortly afterwards. The wording matters: it is the financial year end that counts, not the filing date. A company with a March year end had its last in-scope year ending 31 March 2022. A company with a December year end had its last in-scope year ending 31 December 2022, with a notification due by 30 June 2023 and a report by 31 December 2023.
What did not end is liability for those final years. If you never filed a 2022 notification, the penalty exposure did not evaporate in 2024. If you filed a report and received a determination that your substance was inadequate, that determination stands. We closed out two such matters for clients in the first half of this year, one a penalty that had been sitting unpaid because the finance manager assumed withdrawal meant amnesty, the other an appeal on a holding company report that had been waiting for a decision for nearly two years.
Withdrawal is not the same as amnesty. Nothing in Cabinet Decision 98 of 2024 forgave anything.
Where substance went
The reason the ESR could be switched off is that its job had already been taken over. The Economic Substance Regulations were introduced in 2019 to answer an EU and OECD concern that zero-tax jurisdictions were hosting income with nothing behind it. Once the UAE introduced a federal corporate tax under Federal Decree-Law 47 of 2022, the question of substance could be asked inside the tax return instead of through a parallel filing, and the answer could carry a tax consequence rather than a fixed penalty.
That is what happened. A free zone entity that wants Qualifying Free Zone Person treatment on its qualifying income, subject to conditions, has to satisfy a substance test that reads like the old ESR test with the volume turned up. It must maintain adequate substance in the free zone: enough full-time employees, enough operating expenditure and enough assets to perform its core income-generating activities there. It must prepare audited financial statements. It must comply with transfer pricing rules and documentation. And it must keep its non-qualifying revenue below the de minimis threshold, which is the lower of 5% of total revenue or AED 5 million.
The lists of qualifying and excluded activities were refreshed by Ministerial Decision 229 of 2025, and if you last looked at this in 2023 the definitions have moved. Holding shares and other securities for investment purposes remains a qualifying activity, which is why so many DIFC and ADGM holding companies care about this, but the surrounding conditions are worth re-reading against the current text rather than a summary.
The consequence of failing is where the two regimes really part company. Under ESR, an inadequate substance report produced a penalty and an exchange of information with the parent company's tax authority. Under corporate tax, an entity that fails any of the Qualifying Free Zone Person conditions loses that status for the tax period in which it fails and for the following four tax periods. Five years of standard-rate corporate tax on all taxable income is a different order of problem from a fine.
We wrote up the full set of conditions in our note on Qualifying Free Zone Person status for DIFC entities, and the broader regime in the UAE corporate tax guide.
Then and now, side by side
| Then (ESR, financial years to 31 December 2022) | Now (financial years from 2023 onwards) | |
|---|---|---|
| Notification | Annual ESR notification to the regulatory authority within six months of year end | None. Corporate tax registration with the FTA replaces it |
| Report | Economic substance report within twelve months of year end if relevant income was earned | No separate substance report. Substance is declared and evidenced through the corporate tax return and audited financial statements |
| Who assessed it | Regulatory authority (free zone authority or registrar) collected filings; the FTA acted as National Assessing Authority | The FTA, through corporate tax audit and review of the return |
| Penalty | Fixed penalties for non-filing or inadequate substance; information exchange with foreign tax authorities | Loss of Qualifying Free Zone Person status for the current and next four tax periods, plus standard corporate tax penalties |
| Where substance is tested | Against the core income-generating activities of each relevant activity, anywhere in the UAE | Against the core income-generating activities of the qualifying activity, and it must be in the free zone |
The last row is the one people miss. Under ESR, a DIFC holding company could point to a director in Abu Dhabi and an accountant in Sharjah and count both. Under the corporate tax rules, adequate substance has to be maintained in the free zone itself. Outsourcing to a related party or a third party is permitted, but only where the activity is performed in a free zone and the entity supervises it properly.
Who should still care
If you are a free zone entity claiming Qualifying Free Zone Person treatment, you should care more than you ever did about ESR, because the test is live every year and the downside is larger. That includes DIFC and ADGM holding companies, Prescribed Companies and SPVs that hold shares or intellectual property, and fund management entities.
If you are a holding company that has decided not to claim that treatment, or that is exempt for another reason, the substance obligation under tax law falls away, but the other obligations do not. The UBO register still has to be accurate. DIFC and ADGM registrars still expect annual confirmations, resident directors where the rules require them, and minutes that show decisions were actually taken. Designated non-financial businesses still carry AML registration and reporting duties. Our DIFC annual compliance calendar lists what those look like across a year.
If you have an open 2022 matter, deal with it. A holding company with an unfiled 2022 report is not "out of scope now"; it is late.
When the bank still asks for your ESR report
This is the part that generates the most calls. A relationship manager sends a periodic review pack and one of the fields says "Latest ESR notification and report". The client cannot produce one, panics, and searches for someone to file it.
Bank checklists are slow to change. Several of the local banks we work with still run onboarding forms with a field for the ESR reference number, and at least one KYC refresh template we saw in June had the ESR line sitting directly under the corporate tax registration number, as if both were current. The compliance officer processing the file is usually not an ESR expert; they have a box that needs something in it.
What works, in our experience, is not arguing about the form. Send a one-page letter on the company's letterhead stating that the Economic Substance Regulations ceased to apply to financial years ending after 31 December 2022 under Cabinet Decision 98 of 2024, attach the last notification acknowledgement you did file if you have one, and then answer the question the bank is actually asking: here is the corporate tax registration, here are the audited accounts, here is the lease, here are the directors and where they sit. Banks may still push back, but the pushback is almost always about substance evidence rather than the ESR form itself, and that evidence is what you should have ready anyway.
The same applies to auditors. An audit firm that asks for "ESR compliance confirmation" as a standing item on its checklist is asking whether there is a contingent liability for unfiled years. The honest answer for most companies is that the last in-scope year was filed and closed, and the auditor should be pointed at the corporate tax position instead. If you need help assembling that pack, our accounting and tax team does this alongside the corporate tax return, and the 30 September filing deadline for December year ends is a sensible moment to tidy it up.
What we would do this quarter
Check the last ESR filing you made and confirm it was for a financial year ending on or before 31 December 2022. If there is a gap, close it.
Stop paying for annual ESR assessments. If a renewal invoice arrives with that description, ask what regulation it relates to.
Re-run the Qualifying Free Zone Person substance test against the current text, including Ministerial Decision 229 of 2025, and write down the evidence: headcount in the free zone, expenditure, assets, board minutes held there. This is the work the ESR report used to force, and the corporate tax return now assumes.
Keep a bank letter on file explaining the position, so the next KYC refresh takes ten minutes.
We should also be honest about our own housekeeping: Atlas still has a service page carrying the old "economic substance" name, and we are retiring the language rather than pretending the regulation is alive.
Governance records are where substance is proved or lost, and our company secretarial and governance service exists to keep those in order. Where the question turns into corporate tax advice, we work with GTAG, the tax advisory firm in the same group as Atlas under Assetica, so that the structuring and the tax analysis come from one conversation rather than two.
If you have received one of those ESR emails and are not sure whether to ignore it, send it to us. We will tell you what, if anything, it relates to.
Frequently Asked Questions
Are the UAE Economic Substance Regulations still in force in 2026?
No. Cabinet Decision 98 of 2024 amended the regime so that the Economic Substance Regulations no longer apply to any financial year ending after 31 December 2022. There are no ESR notifications or reports to file for 2023, 2024, 2025 or 2026 financial years. Obligations for financial years ending on or before 31 December 2022 remain enforceable.
Do I still need to file an ESR notification or ESR report?
Only if the filing relates to a financial year that ended on or before 31 December 2022 and you never filed it. For any later financial year there is nothing to submit. If a provider is offering to file a 2024 or 2025 ESR report for you, they are selling a service the regulation no longer requires.
What replaced the ESR in the UAE?
Substance is now tested inside the corporate tax regime under Federal Decree-Law 47 of 2022. A Qualifying Free Zone Person must maintain adequate substance in the free zone, with enough employees, expenditure and assets to carry out its core income-generating activities, and must keep audited financial statements. The test is applied by the Federal Tax Authority through the corporate tax return rather than by a free zone registrar.
Can I still be penalised for an old ESR filing?
Yes. Penalties for failing to notify or report for financial years ending on or before 31 December 2022 were not cancelled by the withdrawal. If you have an unpaid penalty, an unfiled 2022 report or an appeal in progress, that matter is still live and should be closed out rather than ignored.
Why does my bank still ask for an ESR report?
Most bank onboarding and periodic review checklists were written between 2020 and 2022 and have not been updated. The compliance officer is usually asking whether your company has real activity behind it, not for the form itself. A short letter explaining that ESR ceased for post-2022 financial years, together with your audited accounts and evidence of substance, normally satisfies the request.
Does a DIFC or ADGM holding company still need substance?
If it wants Qualifying Free Zone Person treatment on its qualifying income, yes. The corporate tax rules require adequate substance in the free zone regardless of the fact that ESR no longer applies. A holding company that is not claiming that treatment still has UBO register, AML and registrar obligations, and banks will still expect to see directors, decisions and records in the UAE.
What happens if a Qualifying Free Zone Person fails the substance test?
It loses Qualifying Free Zone Person status for the tax period in which it failed and for the following four tax periods. During that time all of its taxable income is taxed at the standard corporate tax rate. That makes the substance test considerably more expensive to fail than an ESR report ever was.