ESR for Headquarter Business in UAE


UAE issued Economic Substance Regulations on 30 April 2019 in accordance with the Minister’s Resolution No. 31 of 2019. After that UAE issued Ministerial Decision No. 215 of 2019 that provides supervision on the application of the regulations. The introduction of the ESR by the UAE is actually to curb the harmful tax practices to the integrity of its assurance to the OECD (Organization for Economic Co-operation and Development). The new rules need the UAE companies within the scope of the protocols to submit ESR notifications to the related mainland or free zone regulatory authority. A headquarter business activity is a related activity under the ESR law of UAE.

What is a Headquarter Business?

A headquarters business is a dominant administrative office of any company. It supervises and organizes the processes, management, and premeditated planning of;

  • Subsidiaries
  • Branches
  • Divisions 

A business license in the UAE is considered a headquarters business. It is classified when it delivers services to multinational companies or commercial groups. The noteworthy factor is that the license holder is responsible for the group’s inclusive success. The holder makes perilous decisions and handles momentous aspects of the group’s performance.

What are the requirements for identifying as a headquarter?

To identify a company as a headquarters, they must demonstrate the following;

  1. It must provide strategic oversight and control to a group of associated companies
  2. It must have a provision of senior management in charge of the group’s path
  3. It undertakes and manages material risks of foreign groups or companies’ activities
  4. It offers practical advice and support to business groups for their success

What are the Core Income Generating Activities of the Headquarters Business?

A company that conducts the relevant activity is mandatory to validate economic substance and file an ESR return. It must be for the financial period in which the business generated gross income from an applicable activity. Here are the Core Income Generating Activities (CIGA) of Headquarters Business such as;

  1. Risk Management and Mitigation

Effective risk management is a mandatory factor for all successful businesses. That’s why Risk Management and Mitigation is a primary point of CIGA. Headquarters Business takes on the charge of classifying and modifying noteworthy risks related to the activities of the groups. This includes;

  • Financial risks
  • Operational risks
  • Legal risks

The Headquarters Business assists in ensuring the effective operation and financial solidity of the group by efficiently handling such risks. It also helps to prevent losses and defends upcoming income generation.

  1. Acquiring Working Expenses in support of Group Entities

The activity of acquiring Working Expenses in aid of Group Entities may consist of giving professional advice to group companies or placing technology for the group. It also consists of purchasing important assets or services in support of the group firms.

  1. Managing Group Activities

There are some key functions that regulate the effective and successful operation of any company. It may include;

  • Marketing
  • Human Resource
  • Information Technology
  • Finance
  • Tax

This Core Income Generating Activity is about guaranteeing such activities are synchronized to yield the top results for the group companies.

  1. Exemptions from Headquarters Business Activity

Some companies provide headquarters services that undertake certain zones. It may include some sectors such as;

  • Banking
  • Insurance
  • Investment Fund Management
  • Lease-Finance
  • Shipping
  • Distribution
  • Service Centre Businesses

However, such companies are not measured as carrying out headquarters business to evade identical reporting in the UAE ESR. These companies are not mandatory to validate economic substance distinctly for the UAE ESR test.

  1. Strategic Leadership and Decision-Making

Another Core Income Generating Activity of Headquarters businesses is Strategic Leadership and Decision-Making. Headquarters businesses have a provision for the senior management team that is in charge of setting the direction for the group. They make important decisions about;

  • Market expansion
  • Product development
  • Resource allocation
  • Investment strategies

These decisions straight influence the success of foreign group activities or companies. For example, a headquarters might choose to go into a new market with high-evolution potential. It could lead to noteworthy revenue opportunities for all the foreign group entities involved.


UAE ESR compliance has augmented the compliance pressure on the mainland and free zone companies. The businessmen have been contemplative over the numerous requirements in the UAE as per ESR law. It details the related activities to regulate they come under the scope of the Economic Substance Regulations. Companies need specialized guidance and require the help of trustworthy Economic Substance Regulations service providers such as Farahat & Co. Their proficient team of extremely skilled in the specific zone of Economic Substance Regulations and business setup consultants assist the companies in different and cost-effective ways so they can achieve success easily in the UAE market as per Economic Substance Laws.

Leave a Reply

Your email address will not be published. Required fields are marked *