UAE Free Zone ESR: Economic Substance Filings Were Cancelled in 2024

UAE free zone companies do not file ESR notifications or Economic Substance reports for financial years ending after 31 December 2022. Cabinet Decision No. 98 of 2024, effective 2 September 2024, cancelled the requirement.

Two years on, a large amount of free zone content still describes Economic Substance Regulations as a live annual obligation, and some advisory firms still quote a fee for the filing. If you have been invoiced for an ESR report for FY2023, FY2024 or FY2025, you have been invoiced for work that the law no longer requires.

Do UAE free zone companies still file ESR reports?

No — not for financial years ending after 31 December 2022. The notification and the annual report were both cancelled by Cabinet Decision No. 98 of 2024, which took effect on 2 September 2024.

The obligation has not been reduced, deferred, or replaced with a lighter version for those periods. It has been removed.

What Cabinet Decision 98 of 2024 actually did

The Economic Substance regime came in under Cabinet of Ministers Resolution No. 31 of 2019 and was revised by Cabinet Decision No. 57 of 2020. It required entities carrying on one of nine "Relevant Activities" — including holding company, headquarters, distribution and service centre, IP, and lease-finance business — to file an annual notification and, if they earned income from that activity, a full substance report.

Cabinet Decision No. 98 of 2024 amended that framework so that the notification and report requirements apply only to financial years falling within the original window. Everything from FY2023 onward is out of scope.

It is worth being precise about the mechanism, because it explains the boundary date: the cancellation is drawn by reference to financial years ending after 31 December 2022. A company with a calendar year end had FY2022 as its last in-scope year. A company with a 30 June year end had the year ended 30 June 2022 as its last in-scope year — the year ended 30 June 2023 is already out.

The historical window that still applies

This is where accurate reporting matters more than a clean headline.

ESR obligations still exist for financial years from 1 January 2019 to 31 December 2022. If your company had a Relevant Activity in that window and never filed a notification or report, that exposure has not gone away. The FTA retains a six-year audit window over the period.

So the correct summary is not "ESR is dead". It is: ESR is not a live annual filing obligation for any current period, and there is a historical tail for 2019–2022 that some companies have not closed.

Industrial and logistics companies are the ones most likely to have that tail open, because distribution and service centre business and headquarters business were squarely in scope and were common licence profiles in the big trade zones. If you are a long-established company in a zone like JAFZA, a five-minute check of whether FY2019–FY2022 notifications were filed is worth doing.

Penalties for post-2022 periods are being cancelled and refunded

Administrative penalties that were issued for ESR non-compliance relating to periods after 31 December 2022 are being cancelled, and amounts already paid are being refunded through the FTA's e-refund portal.

If you paid an ESR penalty for FY2023 or later, that is recoverable. It is not automatic in the sense of arriving unprompted for everyone — check your FTA account and the e-refund route rather than assuming it has been handled.

What replaced ESR in practice

Nothing directly. There is no successor filing.

But the underlying policy question — is this company actually doing something here, or is it a nameplate? — did not disappear. For free zone companies it moved into corporate tax. The adequate substance condition in Cabinet Decision No. 100 of 2023, Article 8, requires a Qualifying Free Zone Person to carry out its core income-generating activities in the zone and to maintain adequate assets, adequate qualified full-time employees, and adequate operating expenditure there.

That test now does much of the work ESR used to do, and it does it with a sharper consequence: failing it does not produce an administrative penalty, it costs you the 0% rate. See the eight QFZP conditions for where substance sits among them.

The practical implication for anyone who bought a desk-only licence on the strength of "no substance requirements in the UAE any more": that was never the right reading of the ESR cancellation, and it is a worse reading now.

How to tell whether an advisor's ESR content is out of date

Three tells, in ascending order of seriousness.

It describes ESR as an annual obligation without a date boundary. If a page says "free zone companies must file an ESR notification each year" with no reference to the 31 December 2022 cut-off, it was written before September 2024 and has not been reviewed since.

It cites Cabinet Decision 57 of 2020 as the current position. That decision is still part of the story for the historical window, but it is not the current position on filing. A current page has to reference Cabinet Decision No. 98 of 2024.

It quotes you a fee for a current-year ESR filing. This is the one that costs money. A fee for closing a 2019–2022 gap is legitimate work. A fee for an FY2025 ESR report is a fee for a filing that does not exist. Ask which financial year the engagement covers, in writing, before you pay.

What you should still be filing

The cancellation of ESR does not thin your compliance calendar as much as it might appear, because the obligations that replaced the era's regulatory load are all still live.

| Obligation | Status | |---|---| | ESR notification and report, FY2023 onward | Cancelled by Cabinet Decision 98 of 2024 | | ESR notification and report, FY2019–FY2022 | Still required if not filed; six-year FTA audit window | | Corporate tax registration and return | Required | | UBO / real beneficiary register | Required, under Cabinet Decision 109 of 2023 | | Audited financial statements, if you are a QFZP | Required at any revenue level |

That last row is the one that catches cheap-licence buyers, and it is the direct replacement in cost terms for the ESR filing they no longer have to pay for. Ministerial Decision No. 84 of 2025 sets a general AED 50,000,000 revenue threshold for audited accounts and then removes it entirely for Qualifying Free Zone Persons. Our audit requirement post covers what that means in practice and which zones publish anything at all on the subject.

What to do this week

Two things, both quick.

First, establish whether your company has an open ESR position for any financial year between 2019 and 2022. If it does, deal with it; the audit window runs to six years and the cancellation does not touch it.

Second, if you are paying an annual ESR fee to anyone, ask which financial year it relates to. For any year ending after 31 December 2022, the correct answer is that there is nothing to file.