The Economic Substance Regulations (ESR) will no longer apply in the UAE
According to Cabinet Decision No. 98 of 2024, published on the UAE legislation portal, the ruling is structured as follows:
- A new Article 2 bis is added to Cabinet Decision No. 57 of 2020: “The provisions of this decision shall apply to financial years commencing on 01.01.2019 and ending on 31.12.2022.”
- All administrative fines imposed on licensees under Cabinet Decision No. 57 of 2020 for financial years ending after December 31, 2022, shall be canceled.
- If any administrative fines were imposed under the same decision for financial years ending after December 31, 2022, these fines will be refunded, and any related appeals will be withdrawn.
Cabinet Decision No. 98 of 2024 was issued on September 2, 2024, and will come into effect upon its publication in the Official Gazette. But the decision was made available on the official UAE legislation website by September 24, 2024, and it remains to be seen whether this aligns with the official publication date.
UAE will continue to be monitored under Criterion 2.1 (regimes offering exemptions for foreign-sourced income). Additionally, the requirements for adequate substance will remain relevant for companies applying the Qualified Free Zone Person (QFZP) regime under Article 18.1(a) of Federal Decree-Law No. 47 of 2022.