ESR Amendment – Important Changes in the Definition

The United Arab Emirates has gradually become one of the most attractive countries for setting up a business, and it is because of this reason there is an increase in the number of entities conducting business in the country. With the increase in business activities, there has also been an increase in fraudulent activities by such companies, and to prevent such activities, the ESRegulations were introduced in the country.

The ESR was introduced as a response to the inclusion of the UAE Tax Framework to the EU list of non-cooperative jurisdictions for the purposes of taxation (also known as the EU Blacklist) on the 30th of April 2019.

One the 10th of August, there was another amendment made to the Economic Substance Regulation (Cabinet Ministers Resolution Number 57 of 2020), which will replace the older resolution and will also bring in a lot of change. Some of the important takeaways of the amendment in comparison to the older regulation have been mentioned below:

The Difference in Definitions According to the ESR Amendment

Referring To

As per Earlier Resolution

As per Amended Resolution

  • Licensee
Previously the definition as mentioned in the resolution was that of a person or entity which is authorized to carry out a relevant activity in the country, which will include the various available Free Zone or any of the Financial Free Zone.




  1. As per the amended resolution, a Natural person will be now

excluded from ESR applicability.


  1. The FAQs from the MOF clarify that sole proprietorship, trust, and a foundation will not be treated as licensees for the purpose of ESR


  1. The amendment has provided clarity on the transactions which are conducted between a Head Office (HO) and a Branch Office.


  • Relevant Income
In the previous resolution, the term relevant income was not defined. Only the term relevant activities were defined. The gross income of the entity, which has been calculated according to the relevant Accounting Standard, is to be considered and used for Economic Substance Resolution Notification and Reporting.


  • Exempt Licensee
According to the previous ESR resolution, the licensees which are the owned by –

  1.   Federal Government
  2. Emirati Government
  3. UAE Government body or Authority

Were to be considered exempt.


Such licensees can be an owner or a part owner (at least 51%)


The exempted licensees are required to file Notification with the relevant Authorities, but they may or may not be required to take the ESR test.


  1. The exemption provides relief to the UAE based entities and Groups that only have a local presence


  1. Govt. owned entities need to file a Notification and submit documentary evidence for exemption


  1. ‘Activities exclusively carried out in the UAE’ is not defined. It needs to be studied whether it would cover any international transactions/ activities performed outside the UAE.



  • Time to Submit Notifications
In the previous resolution and as per the FAQs which were released by the Ministry of Finance, June 30, 2020 was the deadline provided to every business to submit the notification relating to the Economic Substance for the financial year ending December 2019


The Timeline to submit the Economic Substance Regulation Notification have been mentioned and prescribed in the amendment


The Ministry of Finance in the UAE will announce the date for the submission or resubmission for ta company for the financial year ending December 2019.


  • MNE Groups
In the earlier resolution there was no concept or mention of a Multinational Enterprise Group (also known as MNE) The amendment to Economic Substance Resolution now defines and incorporates Multinational Enterprises (MNE).

The above, we have tried to perform a side by side comparison of the original ESR resolution and the new amendment in relation to the important terms which are mentioned.

There are many more changes mentioned in the amendment which will be covered in the future. Keep a lookout for our future blogs.

If you require further knowledge about the implications of the amendment on your business, you can Contact Us. JAXA Chartered Accountants comprises of a panel of experts which will help you to understand every possible outcome of the Economic Substance Regulation and its effect over your business. JAXA also provides may other services such as Accounting, Auditing, VAT and Tax related services, and many others, which will help your business to gain traction and avail the best opportunities in the environment.