Economic Substance Regulations (ESR) support in the UAE — the 2019–2022 clean-up.

For current periods, no. Cabinet Decision 98 of 2024 limited the Economic Substance Regulations to financial years 2019 to 2022. For any period ending after 31 December 2022, no ESR notification or report is required — the Corporate Tax regime now carries the substance function that ESR used to. What can still be outstanding is the 2019–2022 window: if a relevant activity applied in those years and a notification or report was missed, that back-year obligation and its penalty remain live until remediated. Velmont Crest is an accounting practice; we assess the back-years and prepare the documentation, and we refer contentious penalty appeals to a registered FTA tax agent.

ESR applied to UAE entities carrying out any of nine relevant activities: banking, insurance, investment fund management, lease-finance, headquarters, shipping, holding company, intellectual property, and distribution and service centre. An entity had to first determine whether it carried out a relevant activity in the relevant financial year (2019–2022); only then did the notification and, where income was earned, the report obligations follow. Determining whether a relevant activity actually applied — rather than assuming it did or didn't — is the first thing we work through, because it decides the entire back-year position.

For the applicable years there were two layers. Every entity carrying out a relevant activity had to file an annual ESR notification. On top of that, an entity that earned income from a relevant activity and was not exempt had to file an ESR report demonstrating the economic substance test — that it was directed and managed in the UAE and carried out adequate core income-generating activities (CIGA) with sufficient employees, premises and expenditure in the UAE. The notification recorded that a relevant activity existed; the report proved the substance behind it. Both applied only to the 2019–2022 financial years.

The substance test is what an ESR report had to demonstrate for a relevant activity: that the entity was directed and managed in the UAE, that it conducted adequate core income-generating activities (CIGA) in the UAE, and that it had adequate employees, physical premises and operating expenditure in the country relative to the activity. CIGA are the substantive activities that actually generate the income — for a distribution business, for example, arranging the purchase and onward supply of goods, rather than merely booking the revenue. The test was applied per relevant activity, and the report documented how each limb was met for the relevant year.

A failure to file the ESR notification carried an administrative penalty of AED 20,000, and a failure to file the ESR report carried AED 50,000, with further consequences — including higher penalties and potential exchange of information — for failing the economic substance test itself. Because ESR applied to the 2019–2022 years, these penalties attach to those specific periods where filings were missed; they don't lapse simply because ESR no longer applies to current periods. We assess the penalties on your file, prepare the remediation, and coordinate a registered FTA tax agent where a formal appeal is warranted.

Certain categories were exempt from the full ESR reporting obligation for the relevant years — these included, broadly, investment funds, entities that were tax resident outside the UAE, entities wholly owned by UAE residents that met defined conditions and were not part of a multinational group, and branches of foreign entities whose relevant income was taxed elsewhere. An exempt entity generally still had to file a notification and provide evidence supporting the exemption. Part of a back-year assessment is checking whether an exemption genuinely applied for each year, because that changes whether a report was ever owed.

ESR was introduced to meet international standards on harmful tax practices, requiring entities earning income from certain activities to show real economic substance in the UAE. When the UAE introduced federal Corporate Tax for periods starting on or after 1 June 2023, the Corporate Tax regime took over the substance and profit-attribution function — so running ESR in parallel for later years would have been duplicative. Cabinet Decision 98 of 2024 confirmed ESR applied only to 2019–2022. In practice this means the substance analysis lives on inside Corporate Tax, particularly for holding companies, IP businesses and free zone entities, which is why we hand the ESR back-year picture over to the Corporate Tax file.

Yes, on the accounting and remediation side. We assess the penalty and the underlying years, reconstruct the relevant-activity position, prepare the back-year notification or report that was missed, and assemble the substance evidence that supports it — so there is a documented basis for resolving or mitigating the penalty. What we don't do is act as your registered tax agent before the authority: a formal penalty appeal or representation is the role of a registered FTA tax agent, and where that's needed we coordinate one and hand over a file that's ready to work from.

No. Velmont Crest is a UAE accounting practice. For ESR we assess whether a relevant activity applied in the 2019–2022 years, prepare the back-year notifications and reports where they were missed, document the substance position, and help resolve or mitigate penalties on the accounting side. We don't act as a registered FTA tax agent, we don't provide formal representation before the FTA or Ministry of Finance, and we don't guarantee a particular outcome on a contested penalty. Where agent representation or a contentious opinion is needed, we coordinate with a registered FTA tax agent and hand over a documentation file ready for them to use.

Economic substance in the UAE applied on the same terms across the mainland and the financial and non-financial free zones, including ADGM and DIFC, for the 2019–2022 years. Any entity — mainland, free zone or offshore — that carried out one of the nine relevant activities in a relevant financial year had to file an ESR notification, and, where it earned income from that activity and was not exempt, an ESR report. There was no separate ADGM economic substance regime running alongside the federal one; the federal Economic Substance Regulations covered ADGM-registered entities too. Part of a back-year assessment is confirming, per entity and per year, whether a relevant activity actually applied wherever the entity is licensed.

There is no formal ESR deregistration step to complete for current periods — because there is no ongoing ESR obligation to deregister from. Cabinet Decision 98 of 2024 limited the regime to 2019–2022, so for any period ending after 31 December 2022 you simply have no ESR notification or report to file, and the substance function moves into your Corporate Tax file. If you filed for the 2019–2022 years and then stopped, that is the correct position — provided the earlier years were actually complete. The risk is not a missing deregistration; it's a missed 2019–2022 notification or report still sitting open with its AED 20,000 or AED 50,000 penalty. That back-year gap is what we assess and remediate.

ESR covered four financial years — 2019, 2020, 2021 and 2022 — and each year stood on its own for notification and report purposes. A missed filing for any of those years does not expire on its own; the obligation and the associated penalty stay live until the year is remediated, even though ESR no longer applies to current periods. You can still prepare and submit a back-year notification or report for an applicable year and assemble the substance evidence behind it. We work each of the 2019–2022 years separately, confirm which ones triggered an obligation, and remediate only the years where something was genuinely owed rather than refiling across the board.