ESR for Headquarter Business in UAE

The Economic Substance Regulations (ESR) in UAE were introduced to ensure that companies conducting relevant activities in the country have real economic substance relative to the activities conducted. One such relevant activity outlined in the ESR is a Headquarters Business. This article provides a general idea on the Headquarters Business which is one of the economic activities that fall under ESR and the economic substance requirements which have to be met by companies that are doing Headquarters Business in the UAE.

Definition of a Headquarters Business

In accordance with ESR, an entity will be treated as a Headquarters Business if it services or oversees foreign group companies and takes charge of and, controls or bears an important part of the success of the overall group.

For a company to be seen as taking responsibility for the group’s success or performance, the services provided must involve one of the following:

  • Provision of senior management
  • Assumption or control of material risks for activities of foreign group companies
  • Provision of substantive advice in relation to assumption or control of such risks
  • A company’s position in a corporate structure is irrelevant – it does not need to be the direct or ultimate parent to qualify as a Headquarters Business. Whether it conducts this activity depends solely on the nature of services provided to foreign group companies.
  • Companies mainly engaged in banking, insurance, investment fund management, lease finance, shipping or distribution/service center activities need not separately demonstrate substance for headquarters services as these may normally be part of their activities.

Core Income Generating Activities for a Headquarters Business

The ESR outlines the following as core income generating activities (CIGAs) for a Headquarters Business:

  • Taking Relevant Management Decisions: Making decisions on significant functions and risks for group companies like acquisitions, sales strategy, product development etc. Majority involved in decisions must be physically present in the UAE.
  • Incurring Operating Expenditures on Behalf of Group Entities: Engaging specialist advice, procuring technology or purchasing assets/services for or on behalf of group companies.
  • Coordinating Group Activities: Ensuring marketing, HR, IT, finance, tax etc. are coordinated to best benefit the group as a whole rather than individual companies.

Economic Substance Test Requirements

To meet the economic substance test for a Headquarters Business under the UAE’s Economic Substance Regulations, a company must satisfy the following criteria:

  • Conducting Core Income-Generating Activities (CIGAs) in the UAE

As mentioned earlier, the key CIGAs for a Headquarters Business include taking relevant management decisions, incurring operating expenditures on behalf of group entities, and coordinating group activities. The company must demonstrate that it is undertaking one or more of these essential CIGAs for its Headquarters Business function within the UAE.

  • Direction and Management in the UAE

This requires holding an adequate number of board meetings in the UAE to direct the Headquarters Business operations. Meeting minutes must be properly recorded and kept in the UAE. The board members in attendance should constitute a quorum and be physically present in the UAE. Directors must have sufficient knowledge and expertise to discharge their duties.

  • Adequate Operating Expenditure

Operating expenditures incurred in the UAE should be commensurate with the level of activities conducted. This involves expenditures on overheads, rent, utilities, professional services etc. related to undertaking the Headquarters functions from within the UAE.

  • Sufficient Full-Time Qualified Employees

The number of qualified employees based in the UAE must be adequate considering the scale of the Headquarters Business activities performed. Employees could be directly hired or seconded from other group companies.

  • Physical Assets and Business Premises

The company has to ensure the maintenance of physical assets and business basis in UAE which are adequate for the size and nature of its Headquarters operations.

Through the meeting of the following five parameters, the company will successfully prove its eligibility for Headquarters Business in the UAE in line with the ESR requirements.


Q1. Is a business concern that has head offices in one place but operates major operations in other locations, an example of Headquarters Business or it is only the ultimate parent?

A1. Yes, company`s position in the corporate hierarchy does not matter. The nature of services supplied to the foreign subsidiaries determines if this activity takes place.

Q2. What happens if companies fail to meet the ESR requirements?

A2. For the first and the second violations, the penalties ranged between AED 20,000-400,000. Nonetheless, refunds may be granted if appropriate information is provided to the foreign tax authorities. Additionally, the authorities may take licenses away, suspend them, or not renew them.


In the end, the Economic Substance Regulation imposed strict requirements to make sure that companies conducting such activities as Headquarters Business in the UAE have tangible and active economic substance. Organizations shall understand firstly, definition as well as regulations, to try and prevent sanctions for non-compliance. They are recommended to employ the service of experts in that area to gather information and file detailed reports within specified deadlines. Attaining adequate substance in compliance with the Economic Substance Regulation regime in the UAE, is imperative.

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