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The Economic Substance Regulations (“ESR”) was introduced as part of the UAE’s commitment as a member of the Organisation for Economic Cooperation & Development (“OECD”) Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation.
On 2 September 2024, the Ministry of Finance issued Cabinet Decision 98 of 2024 amending Cabinet of Ministers Resolution No. 57 of 2020 such that any current economic substance requirements cease to apply to any Financial Year ending after 31 December 2022.
Licensees are still required to file any required Economic Substance Notification, Economic Substance Report and satisfy the Economic Substance Test for all periods between 1 January 2019 and 31 December 2022.
The Federal Economic Substance Regime consists of the following:
These legislation (collectively, referred to as the “Economic Substance Regulations" or “ESR”) were prepared in consultation with the OECD and the European Union ("EU”).
Licensees are expected to comply with ESR for all periods between 1 January 2019 and 31 December 2022. The changes to ESR means that an ADGM Licensed person undertaking a relevant activity will not be required to submit an ES Notification for any reportable period which ends after December 2022 (i.e.: 31 January 2023, 30 March 2023, 30 June 2023 or 31 December 2023).
The ESR apply to legal persons and unincorporated partnerships, registered by a competent authority in the UAE, that carry out one or more relevant activities as defined under the ESR (referred to as “Relevant Activities”) across the UAE, including Free Zones and Financial Free Zones. Such entities are referred to as “Licensees”.
In ADGM, Licensees may include companies, partnerships or branches of foreign companies or partnerships, that are registered in ADGM (“ADGM Licensees”), for financial periods commencing on or after 1 January 2019 and ending by 31 December 2022.
The ADGM Registration Authority is the Regulatory Authority responsible for administering ESR in ADGM.
ESR applies to ADGM Licensees that carry out any or more of the following Relevant Activities:
Please refer to Schedule 1 of Ministerial Decision 100 of 2020 for an explanation and examples of each Relevant Activity.
ESR requires ADGM Licensees that carry on one or more Relevant Activities and earn income from such Relevant Activities to meet the Economic Substance Test (As defined in the Regulations).
ADGM Licensees that carry on a Relevant Activity, but claim to be exempt from such activities during the Reportable Period (“Exempt Licensees”), must still submit a Notification on the MoF ESR portal, with the required supporting evidence as defined in the Notification Guidance issued by the Ministry of Finance.
ESR exempts the below ADGM Licensees from the requirement to submit an ES Report and demonstrate Economic Substance in the UAE for the Reportable Period:
As per the ES Regulations, ES notifications must be filed within six (6) months from the end of the relevant reportable period, and Economic Substance Reports must be filed within twelve (12) months from the end of the relevant reportable period. The deadline for relevant year-ends are as follows
*The previous deadline of 31 January 2021 was applicable for:
** Due to technical issues experienced by some Licensees with the filing portal, the MoF issued a circular extending the deadline of 30 June 2021 to 8 July 2021.
*** On 2 September 2024, the Ministry of Finance issued Cabinet Decision 98 of 2024 which amended Cabinet of Ministers Resolution No. 57 of 2020 such that any current economic substance requirements cease to apply to any Financial Year ending after 31 December 2022.
Cabinet Decision 98 of 2024 clarifies that the National Assessing Authority (Federal Tax Authority) will annul pending penalties and return any paid penalties related to rejected appeals for financial periods falling after 31 December 2022. For more information please contact FTAESR@tax.gov.ae
For ESR enquiries email: economicsubstance@adgm.com.
All ADGM Licensees that carry on one more Relevant Activities are required to submit an Economic Substance Notification annually (regardless of claiming to be exempt or not earning income) and confirm the following:
A Notification submitted by a Licensee that carried on a Relevant Activity but is claiming to be exempt (an “Exempt Licensee”) must be accompanied by sufficient evidence to substantiate the Exempt Licensee’s status for each category in which it claims to be exempt.
The Notification must be submitted within six months from the end of the Reportable Period of the Licensee or Exempt Licensee.
The Notification must be submitted electronically on the Ministry of Finance Portal, which can be accessed here.
ADGM Licensees (that are not Exempt Licensees) that undertake a Relevant Activity from which they earn income during a relevant Reportable Period, are also required to:
The ES Report is due within 12 months of the end of the Licensees’ Reportable Period and must be submitted electronically on the Ministry of Finance Portal, which can be accessed here.
Note: Exempt Licensees or Licensees that carry on a Relevant Activity but did NOT derive income from that activity during a relevant Reportable Period, do NOT need to file an ES Report for that relevant Reportable Period (however a Notification is still required to be submitted).
Companies, partnerships or branches of foreign companies or partnerships that are registered in ADGM with financial years commencing on or after 1 January 2019, and undertake one or more of the below relevant activities, are referred to as “ADGM Licensees”. The Economic Substance Regulations apply to ADGM Licensees that carry out any of the following relevant activities:
(each is referred to as “Relevant Activity” and collectively as “Relevant Activities”) Please refer to Schedule 1 of Ministerial Decision 100 of 2020 for an explanation and examples of each activity.
All ADGM Licensees are responsible to self-assess and determine whether they conduct any Relevant Activity and fall within scope of ESR. When making such a determination, a ‘substance over form’ approach should be adopted. An assessment should not be based just on the activities stated on a firm’s licence, but the activities that the firm actually conducts. Please refer to Schedule 1 of Ministerial Decision 100 of 2020 for an explanation and examples of each Relevant Activity.
If after reviewing the available guidance, the ADGM Licensee is unsure whether or not they undertake a Relevant Activity, they should seek independent professional advice.
All ADGM Licensees (regardless if they are exempt or have not earned income during the relevant financial year) that undertake a Relevant Activity are required to do the following:
* In order to determine the relevant filing deadline in the first ESR reportable period, ADGM Licensee’s that are subject to ESR must consider their incorporation date and Accounting Reference Date (financial year-end).
** ADGM exempted Licensees must still submit an Economic Substance Notification on the Ministry of Finance online portal, with the required evidence as defined in the Notification Guidance issued by the Ministry of Finance.
ADGM Licensee’s that are subject to ESR, but have not undertaken a Relevant Activity during a particular financial period, do not need to meet the economic substance test for that particular period. The ADGM Licensee is not required to submit a Notification or submit an Economic Substance Report for that particular financial period.
The ADGM Licensee is required to reassess their position under the Economic Substance Regulations for each subsequent reportable period.
An ADGM Licensee that undertakes a Relevant Activity, but does not earn income from this activity in a financial period, is not required to meet the economic substance test or file an Economic Substance Report for that period.
However, the ADGM Licensee must still submit an Economic Substance Notification on the Ministry of Finance online portal.
An ADGM Licensee that was incorporated to undertake a Relevant Activity, but falls within one of the exemption categories under ESR is required to submit an Economic Substance Notification on the Ministry of Finance online portal together with sufficient evidence to demonstrate that the ADGM Licensee meets the exemption criteria under ESR.
An ADGM Licensee that is exempt is not required to meet the economic substance test or file an Economic Substance Report for that period. However, failure to submit an Economic Substance Notification and provide evidence to support exempt status will require the ADGM Licensee to meet the economic substance test.
Please refer to Ministerial Decision 100 of 2020 for more information.
You must submit a Notification for the ESR reportable period during which a Relevant Activity was undertaken. ESR reportable periods typically align with an ADGM Licensee’s accounting reference period (financial period), but care must be taken when calculating the period at inception – it is the ADGM Licensee’s responsibility to do so.
Economic Substance Notifications must be filed within six months from the end of the relevant reportable period, and Economic Substance Reports must be filed within twelve months from the end of the relevant reportable period.
Yes, these ADGM Licensees undertaking a Relevant Activity that have previously submitted ESR filings to the ADGM Registration Authority are still required to re-submit their filings on the Ministry of Finance online portal. The deadline to submit such filings was by 31 January 2021.
Going forward, all Economic Substance Notifications and Economic Substance Reports must be submitted on the Ministry of Finance online portal (please see question 9 below).
Economic Substance Notifications and Economic Substance Reports must be submitted on the Ministry of Finance online portal.
To do so you will need to create an account on the Eservices Ministry of Finance webpage* Ministry of Finance online portal and then access the Dashboard and start a new notification.
* Please note that you will receive an activation link on both your email and UAE phone number. If you do not have a UAE phone number, please arrange to provide a UAE phone number that you can refer to in the future.
Requests for amendment are individually reviewed by the ADGM Registration Authority. To check on the status of an amendment request, please email EconomicSubstance@ADGM.com.
If you have any questions regarding the scope and/or application of ESR to your business, please review the information on this webpage and seek independent professional advice if necessary. Otherwise, please see below:
Yes. ESR does apply to ADGM Foundations if they undertake a Relevant Activity.
Failure to demonstrate sufficient economic substance in the UAE for the relevant financial year:
First failure
Second consecutive instance of failure
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