Economic Substance Regulations Relevant Activities


The Economic Substance Regulations (ESR) were presented by the UAE Cabinet of Ministers Resolution No.31 in 2019, with guidance issued by Ministerial Decision No.215 on September 11th of the same year. In retort to the need to regulate the UAE economy in countries with low or no duties, the regulations were revised in 2020 to address the Base Erosion and Profit Shifting (BEPS) framework.

The main aim of ESR is not to dodge taxes but to create a system that boosts healthy competition among businesses. It focuses on customer satisfaction, quality, and fair pricing. This article will provide an in-depth understanding of ESR and its impact on the UAE economy.

 What are Economic Substance Regulations and Relevant Activities?

The Economic Substance Regulations mandate that UAE-based onshore and free zone businesses, as well as other business entities engaged in certain Relevant Activities. They maintain and provide evidence of a sufficient economic presence in the UAE that aligns with the nature of their activities. This is referred to as the Economic Substance Test (EST).

Relevant Activities in terms of ESR refer to explicit business activities that fall under the Economic Substance Regulations. These activities focus on certain economic substance requirements in the jurisdiction where they operate. Some common relevant activities are Banking, Insurance, Lease-Finance, Holding Companies, etc.

Relevant activities under ESR

In the UAE, firms must inform the regulatory authority if they are engaged in any relevant activities. The ESR lists have some economic activities that fall under this category. To authorize whether they are performing a Relevant Activity, businesses must not only take into account the activities specified in their trade license but the activities they conduct throughout the financial year.

1- Banking business 

As per the UAE ESR Guidelines, Banking Business is considered a relevant activity if a business accepts cash deposits that can be withdrawn on demand and utilize the deposits to provide loans, advances, overdrafts, guarantees, or investments. The Core Income Generating Activities (CIGA) that fall under this category include;

  • Raising Funds
  • Managing Risks Related to Credit, Currency, and Interest
  • Taking Hedging Positions
  • Providing Loans and Credit

It’s worth noting that financial institutions engaged in currency exchanges, remittance of money, and sale and purchase of stocks, bonds, currencies, and commodities are not confidential as banking business under the UAE ESR.


2- Insurance business

As per the ESR guidelines, an insurance business involves in accepting risks by entering into insurance contracts, both in the life and non-life categories. It also includes reinsurance contracts and captive insurance activities. Core Income Generating Activities (CIGA) under this category include;

  • Predicting and Calculating Risk
  • Insuring or Reinsuring Against Risk
  • Providing Insurance Business Services to Customers
  • Supporting Insurance and Reinsurance

Though, it is vital to note that insurance brokers, agents, and other UAE entities providing insurance-related facilities that do not involve the insured risk are not classified as conducting insurance corporate activity (not relevant activity) as per the ESR guidelines.


3- Lease-Finance business

Under the ESR’s relevant activity, businesses in the UAE that provide credit or financing through lease arrangements are known as lease-finance businesses. Such companies provide loans and enter into finance leases for assets other than terrestrial.

Though, banks, insurance companies, and investment fund companies that also provide lease financing services are excluded from this category. It is due to avoid identical reporting while demonstrating economic substance in the UAE. The Core Income Generating Activities (CIGA) of lease-finance businesses involve;

  • Approving Funding Terms
  • Classifying and Acquiring Assets for Leasing Purposes
  • Setting the Terms and Tenure of any Funding or Leasing
  • Monitoring and Revising Agreements
  • Handling Risks



4- Shipping Business

Businesses that operate multiple ships for international transportation of passengers or cargo, or both, must validate economic substance in the UAE related to their shipping business. Though, it’s important to note that ships used for leisure and fishing are not included in the UAE Economic Substance Regulations’ definition of ships as a relevant activity. The Core Income Generating Activities (CIGA) included under the shipping business involve;

  • Managing crew
  • Repairing and maintaining ships
  • Supervision and tracked shipping


5- Holding Company Business

A holding company, as defined by the ESR, holds shares or unbiased interests in other companies and doesn’t engage in any other commercial activity. If the company achieves this narrow definition, it only needs to demonstrate reduced economic substance.

Though, if it carries out other commercial activities and owns investments or assets, it must validate increased economic substance in the UAE. The core income-generating activities of a holding company relate to holding shares in other firms.



The Economic Substance Regulations (ESR) have been implemented in the UAE to ensure that companies operating in certain relevant activities demonstrate economic substance within the country. Economic Substance Regulations is a well-known company that provides many services related to the ESR including;

  • Consultation
  • Compliance
  • Audit services

Businesses must understand the definition of their relevant activity and ensure they meet the core income-generating activities to comply with the ESR. That’s why, the proficient team helps companies meet these requirements and avoid penalties. 


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