When the UAE Ministry of Finance announced in October 2024 that Economic Substance Regulations (ESR) would no longer apply, many family offices and holding structures breathed a sigh of relief. No more annual notifications. No more ESR reports. No more penalties for a missed filing.
That relief is justified, but only up to a point. The ESR filing obligation has gone. The need for real substance has not. It has simply moved into the Corporate Tax regime, where the stakes are higher.
What was cancelled
Cabinet Decision No. 98 of 2024 amended the ESR framework so that entities are no longer required to meet economic substance requirements for financial years ending after 31 December 2022. The Ministry of Finance announced the change on 14 October 2024.
In practical terms:
- No ESR notification or report is due for financial years ending after 31 December 2022.
- If you paid an ESR penalty for a financial year ending after 31 December 2022, check your position with the Federal Tax Authority.
- ESR still applies to financial years ending on or before 31 December 2022. Outstanding notifications, reports, information requests and penalties for those years remain live, and you should keep the supporting records.
Why substance still matters
Corporate Tax came into force for financial years starting on or after 1 June 2023. Almost at the same moment ESR stepped back, Corporate Tax stepped in with its own substance tests, and they carry financial consequences rather than just filing penalties.
Tax residency
A company is UAE tax resident if it is incorporated in the UAE, or if it is a foreign company that is effectively managed and controlled here (Article 11(3) of the Corporate Tax Law and Cabinet Decision No. 85 of 2022). For a foreign holding company or a family investment vehicle, where strategic decisions are actually made determines where it is taxed. For a company's Tax Residency Certificate, the Federal Tax Authority asks for evidence of effective management and control in the UAE where relevant.
Qualifying Free Zone Person status
The 0% rate for Qualifying Free Zone Persons depends, among other conditions, on "adequate substance": core income-generating activities carried out in the free zone, with adequate assets, qualified full-time employees and operating expenditure. Core income-generating activities can be outsourced only to another person in a free zone, and only under adequate supervision. Failing the conditions removes the benefit for the current and following four tax periods. Qualifying activities are now set out in Ministerial Decision No. 229 of 2025, which replaced Ministerial Decision No. 265 of 2023 with retrospective effect from 1 June 2023. For family offices, note that fund management and wealth and investment management are qualifying activities only where they are subject to regulatory oversight by the competent authority.
Pillar Two
For multinational groups with consolidated revenue of at least EUR 750 million in at least two of the four preceding financial years, the UAE Domestic Minimum Top-up Tax applies for financial years starting on or after 1 January 2025 (Cabinet Decision No. 142 of 2024). The substance-based income exclusion rewards real payroll and tangible assets in the UAE. Less substance means more top-up tax.
Transfer pricing
Arm's-length pricing applies to transactions between related parties and connected persons. Master file and local file requirements apply to entities with revenue of AED 200 million or more, or those in multinational groups with revenue of AED 3.15 billion or more (Ministerial Decision No. 97 of 2023). Your intra-group management fees, loans and cost recharges need a substance story behind them.
What this means for family offices
Family offices often sit on top of layered structures: a family foundation, a holding company, investment vehicles and sometimes an operating company. The Corporate Tax framework offers helpful routes, but each depends on facts on the ground.
- Family foundations can apply to be treated as tax transparent if they meet the conditions in Article 17 of the Corporate Tax Law, including that their principal activity is receiving, holding, investing, disbursing or managing assets or funds associated with savings or investment, that they carry on no business, and that avoiding tax is not their main purpose. They must apply to the Federal Tax Authority. Ministerial Decision No. 261 of 2024 lets an entity wholly owned and controlled by the foundation apply for the same treatment if it meets the conditions itself, and the Federal Tax Authority published a Family Foundations Guide in May 2025.
- Qualifying Investment Funds are governed by Cabinet Decision No. 34 of 2025 for tax periods from 1 January 2025.
- A family office that is not transparent, exempt or a Qualifying Free Zone Person is taxed at 9% on taxable income above AED 375,000.
In each case, the questions are likely to be familiar from ESR: is this entity really run from here, by people who can make decisions, with the resources to do what it says it does?
Your substance checklist
- Hold board meetings in the UAE, with directors attending in person, and minute the decisions actually taken.
- Make sure directors have the authority and expertise to decide, not just sign.
- Keep staff, premises and expenditure proportionate to the activity claimed.
- Document where investment decisions are made and by whom.
- Keep the ESR records for 2019 to 2022 and close out any open ESR items.
- For free zone entities, test qualifying and excluded income every year, not just at set-up.
- Align intra-group agreements and pricing with who actually does the work.
- Review foundation and holding structures against the transparency conditions before each tax return.
ESR asked you to report substance. Corporate Tax asks you to prove it, and prices the answer.