The Federal Tax Authority (FTA), together with the Ministry of Finance (MOF), has officially started conducting audits on Economic Substance Regulation (ESR) submissions. These audits are intended to verify whether companies in the UAE are genuinely maintaining sufficient substance and compliance with the law — not just on paper, but through evidence-based records.

To help you stay ahead, here’s what you need to know:

FTA Audit Alert

• ESR audits are being carried out under Cabinet Resolution No. 57 of 2020 and Ministerial Decision No. 100 of 2020.
• Companies notified by the FTA must respond within 05 working days, providing a complete set of supporting documents.
• The focus is on proving that management, employees, expenditure, and operations are genuinely taking place in the UAE.
• Non-compliance can result in severe financial penalties, blacklisting, or suspension of licenses.

Required Documents

As part of the audit, entities are expected to maintain and submit (non-exhaustive):

• Board minutes, resolutions and proof of UAE-based meetings (including evidence of directors’ physical presence).
• Trade license, Memorandum and Articles of Association, and lease agreements.
• Audited financial statements, management accounts & working papers for income and profit attribution.
• Employee records including contracts, CVs, Emirates IDs, and timesheets.
• Registers of assets and evidence of physical presence such as office lease contracts, asset registers, and operational expenses.
• Documentation of oversight if core income-generating activities were outsourced.

Risks of Non-Compliance

The penalties for failing to comply with ESR audits are significant:

• Fines ranging from AED 20,000 to AED 400,000, depending on the breach.
• Suspension, non-renewal, or revocation of trade licenses for repeated violations.
• Reputational damage with regulators, banks, and stakeholders.
• Possible criminal liability where false or misleading information is provided.

How MBG Supports You?

Our Corporate Secretarial and ESR Advisory team goes beyond compliance filings — we act as your compliance partner to keep your business protected. MBG can:

• Review and gap-assess your existing ESR documentation against FTA’s audit checklist.
• Prepare, maintain, and safeguard critical records such as board minutes, shareholder resolutions, and governance documents.
• Assist with ESR notifications, filings, and clarifications with the authorities.
• Ensure evidence of substance through documentation of employees, expenditure, and physical presence in the UAE.
• Support in audit response by compiling and presenting documents in line with FTA requirements.
• Strengthen corporate governance with UBO, AML, and compliance frameworks to mitigate regulatory risks.
• Provide continuous monitoring & updates on ESR and related regulatory developments.

Next Step

Don’t wait until you receive an audit notice. A proactive ESR compliance review today could save you significant financial and reputational risks tomorrow.