Relevant Activities Under Economic Substance Regulations(ESR) in UAE

All free zone, onshore, and certain other enterprises in the UAE are required by the Economic Substance Regulations proactively provide their services and demonstrate their economic presence in the nation. According to Cabinet of Ministers Resolution No. 57 of 2020, only companies that carry out specific “Relevant Activities” are subject to the ESR requirements. Businesses only need to abide by the Economic Substance Regulations if they carry out those particular relevant activities.

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    ESR Regulations identifies any of the following activities to be a Relevant Activity:

    Banking Business

    Banking Business” means the business of accepting deposits of money which may be withdrawn, or that are repayable on demand or after a fixed period, or after notice, by cheque or otherwise, and the use of such deposits, either in whole or in part, in:

    1. The making or giving of loans, advances, overdrafts, guarantees or similar facilities; or
    2. The making of investments, for the account and at the risk of the Licensee.

    UAE businesses engaged in exchanging foreign currency and remitting money, and financial intermediaries in the sale and purchase of domestic and foreign stocks and bonds, currencies and commodities and money market transactions, are not considered a Banking Business for purposes of the ESR Regulations.


    ABC Bank (UK) offers current accounts, savings accounts, loans, credit cards, and other products and services to individual and corporate customers through a number of branches in the UAE. ABC Bank clearly undertakes a Banking Business in the UAE and is subject to the ESR Regulations.

    Insurance Business

    Insurance Business means the business of accepting risks by effecting or carrying out contracts of insurance, in both the life and non-life sectors, including contracts of reinsurance and captive insurance arrangements.

    A UAE business that carries on an Insurance Business would be regulated by either the UAE Securities & Commodities Authority (for a Licensee established ‘onshore’), or the DFSA (for a Licensee established in the DIFC), or the FSRA (for a Licensee established in ADGM).


    First Life LLC (UAE) provides life, health, and car insurance in and from the UAE, and is regulated as an Insurer by the UAE Securities & Commodities Authority. First Life LLC clearly undertakes an Insurance Business and is subject to the substance requirements.

    Investment Fund Management Business

    The definition of an Investment Fund Management Business encompasses Licensees that provide discretionary investment management services in relation to domestic or foreign “Investment Funds”.

    Discretionary Investment Fund Management services include making investment, divestment and risk-related decisions on behalf of an Investment Fund. UAE businesses providing fund administration, custodian, investment advisory, and other Investment Fund-related services are not considered engaged in an Investment Fund Management Business. The Investment Fund itself is not considered an Investment Fund Management Business unless it is a self-managed fund (the Investment Manager and the Investment Fund are part of the same entity).

    Shipping Business

    To undertake a Shipping Business, a Licensee must operate one or more ships in international traffic, for the transport of either passengers, cargo or both.

    The definition of a “ship” for purposes of the ESR Regulations does not include:

    • Vessels used for fishing;
    • Vessels that are “small” (i.e. tonnage does not exceed ten tonnes); and
    • Leisure vessels (e.g. cruise ships and private yachts).


    Water LLC owns a passenger ship and its business is to operate that ship in international traffic to carry passengers from the UAE to other Middle East countries. Water LLC is within the scope of a Shipping Business because it operates a ship in international traffic for the transport of passengers.

    SailorCorp LLC provides and manages the crew of Fourth Fleet LLC’s ship as part of its crew management business, but SailorCorp LLC does not operate the ship. SailorCorp LLC is not related to Fourth Fleet LLC.

    SailorCorp LLC is not considered to carry on a Shipping Business because it does not operate the ships where its crew is being deployed. The mere provision of crew and ship management services is not considered as “operating a ship” for purposes of the ESR Regulations.

    Lease-Finance Business

    The definition of a Lease-Finance Business encompasses Licensees that offer credit or financing for any kind of consideration and includes financing to Connected Persons (e.g. intra-group financing).

    Offering credit or financing includes making loans to related or unrelated parties, entering into finance leases in relation to assets other than land, and providing credit in the form of hire purchase agreements, long-term credit plans, and other types of financing arrangements (including cash pool arrangements).


    STU LLC (UAE) lends AED 1,000,000 to its subsidiary, VWX LLC, at a 10% interest rate per annum. In respect of the interest-bearing shareholder loan made by STU LLC, it is considered engaged in a Lease-Finance Business (specifically, financing).

    Headquarters Business

    A Licensee is regarded as carrying on a Headquarters Business if the Licensee provides services to foreign group companies, and through the provision of such services:

    1. The Licensee takes on the responsibility for the overall success of the group; or
    2. The Licensee is responsible for an important aspect of the overall group’s performance.

    In order for a UAE business to be seen as having “taken on the responsibility for the overall or an important aspect of the overall group’s success or performance”, the services provided by the entity must involve:

    • The provision of senior management;
    • The assumption or control of material risk for activities carried out by foreign group companies; or
    • Substantive advice in relation to the assumption or control of such risks.


    PLC LLC (UAE) is part of a multinational group with subsidiaries around the world. Each of the senior management team based in the UAE has responsibility for a different region, and regularly spend time at the subsidiaries with the local management teams providing strategic direction and helping manage material risks. In addition, PLC LLC supports the group in managing risk through the procurement of external advice centrally, and the associated costs are shared amongst the group.

    PLC LLC’s activities are within the scope of a Headquarter Business.

    Intellectual Property Business

    A UAE business is regarded as carrying on an Intellectual Property Business if it holds, exploits, or receives gross income from “Intellectual Property Assets”.

    An “Intellectual Property Asset” is defined as any intellectual property right in intangible assets, such as copyrights, patents, trademarks, brands, and technical know-how, from which the Licensee earns separately identifiable income in the form of royalties, license fees, franchise fees, capital gains and any other income from the sale or exploitation of the Intellectual Property Asset.


    ChocolateCo has a trademarked range of chocolates, which it manufactures and sells to unrelated third parties.

    ChocolateCo is not an Intellectual Property Business as its gross income is derived from the sale of finished goods to third parties, not the exploitation of an Intellectual Property Asset (i.e. the value of the trademark is intrinsically linked to the value of the chocolates and is not separately distinguishable, making the use of the trademark incidental).

    Holding Company Business

    A Holding Company Business is defined under Article 1 of the ESR Regulations as a business that:

    • Has as its sole function the acquisition and holding of shares or equitable interests in other companies; and
    • Only earns dividends and capital gains from its equitable interests.

    A Licensee will be regarded as carrying on a Holding Company Business only if it meets the two conditions listed above.


    ABC LLC’s only activity is the holding of shares in four subsidiary companies, and ABC LLC is itself held by the regional holding company of the group headquartered in France. The only gross income earned by ABC LLC are annual dividends from its subsidiaries.

    ABC LLC undertakes a Holding Company Business irrespective of its own shares being held by another holding company in the group.

    Distribution & Service Centre Business

    A “Distribution and Service Centre” Business refers to two distinct activities that are covered under one “Relevant Activity” heading.

    A Licensee is considered engaged in a “Distribution Business” if it:

    1. Purchases raw materials or finished products from a foreign group company; and
    2. Distributes those raw materials or finished goods

    A Licensee is considered engaged in a “Service Centre Business” if it provides consulting, administrative or other services to a foreign group company.

    Licensees that only purchase or distribute goods to third parties, are not considered engaged in a Distribution Business. Likewise, Licensees that are engaged in the business of providing services to third parties are not considered as carrying on a “Service Centre Business”


    XYZ LLC (UAE) buys furniture from a group company based in Lebanon, imports the furniture into the UAE, and then re-sells the furniture to other group companies and customers throughout the Middle East. XYZ LLC is considered as carrying on a Distribution and Service Centre Business.


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