Earlier in August 2020, the UAE made a retrospective amendment to its Economic Substance Regulation (ESR). The amended law (also referred to as 'New ESR') made significant changes to the erstwhile regulations. It may be noted that the New ESR is applicable retrospectively to accounting year commencing on or after 1 January 2019.

In continuation of this, on 22 October 2020, Ministry of Finance, UAE (MoF) released template of the forms in which the businesses are required to file revised notification, and, the much-awaited template form for ESR Annual Return. The due date for filing of first ESR Annual Return is 31 December 2020 for the year ended on 31 December 2019.

It is important to note that the due date for filing of revised notification is not yet announced. Also, it is anticipated that the ministry will soon activate the web portal for filing of these forms.

In this alert, we have analyzed different pieces of information that are called for by the ministry through these two template forms.

1. Template form for Revised Notification

The template form requires additional details when compared with the notification form prescribed by various regulatory authorities in the erstwhile ESR law. Few notable ones are:  

  • Details of all branches– Presently, it seems that branches include foreign branches too and their details may also need to be provided;
  • Separate details for a place of establishment as well as a registered office;
  • Main/Primary Regulatory Authority – Presently, there is no clarity on how a licensee would determine which is the Main/Primary Regulatory Authority in case of multiple activities performed by them;
  • Confirmation if the licensee meets the definition of 'exempted license' as per amended Regulation – Template does not provide an option to attach the supporting document to justify as to why it is exempted. Probably, ESR portal may give such an option;
  • Details of the parent company, ultimate parent company and ultimate beneficial owner.

2. Template form for ESR Annual Return

On the other hand, template form for ESR Annual Return appears to be very comprehensive. It may be recalled that broad content of what is expected in ESR Annual Return was already prescribed in the erstwhile regulation as well as the New ESR.

The template form, in more specific terms, prescribes what details need to be furnished to the authority as part of compliance to meet the economic substance test. Key requirements emanating from the template form for ESR Annual Return are given below:

2.1 Financial information

The template form suggests that the licenses would be required to provide a financial statement and various other details forming part of financial statement, such as-

  • Details of revenue from a 'Relevant activity;'
  • Details of expenses corresponding to income from such relevant activity. This, in some cases, would require segmenting the profit and loss account;
  • Details of profit pertaining to the relevant segment;
  • Details of FTE (Full-time employee) in UAE for each activity, separately – In case of licensee undertaking multiple activities with common employees, this may become a challenging task;
  • Separate details Income and expenses from third-party transactions – where the licensee is generating income from both, related as well as a third party.

2.2 Information with regard to the specific activity  

  • Insurance business – Whether licensee undertakes captive insurance service on behalf of the group;
  • Investment Fund Management – Value of assets under management;
  • Lease-financing (financing) – Number of loans, the value of loans, bifurcation of the value of loan issued to UAE and outside UAE;
  • Intellectual Property – Type of IP, Type of income (i.e. royalty/gain from sale), registration details etc.;
  • Distribution – Industry, key activities (e.g. Managing inventory).

2.3 Details of Core Income Generating Activity (CIGA)  

  • In relation to Core Income Generating Activities, the licensee can opt to choose the activities from the list or can also specify new activity performed (if any);
  • Details of the outsourcing arrangement, where CIGA is outsourced.

2.4 Directed and managed test  

  • Number of board meetings (total as well as held in UAE), Quorum present in UAE;
  • Board minutes and records maintained;
  • Whether directors have the necessary expertise and knowledge;
  • Return requires specific declaration for the adequacy of employees, expenditure and physical assets.

Our Comments


All in all, the information required for filing the Annual Return appears to be very comprehensive; in fact, it seems as detailed as filing the corporate income tax return in certain jurisdictions. It is pertinent to note that the ESR regulation has put significant emphasis on the accuracy and appropriateness of the information. There are stringent penalties (which were further enhanced in the New ESR) towards furnishing inaccurate details or failure to meet the substance test.

It is well known that meeting the substance test is a highly subjective exercise. Therefore, while the numbers and factual aspects furnished in the ESR Annual Return would aid in inferring if the business meets the economic substance test, the ultimate exercise would be to examine the critical functions and the capability of the businesses to assume the risk. The economic analysis of this kind would be essential to conclude if the business meets the substance test.

Lastly, on the procedure side, while the template forms are out, we expect that ministry will soon also launch ESR portal considering that the due date for first ESR Annual Return is 31 December 2020.

In the meantime, the businesses are strongly recommended to begin the exercise of compiling and analyzing the relevant information for its adequacy to avoid any last minute rush.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.