With the full implementation of the UAE’s Corporate Tax regime and renewed focus on Economic Substance Regulations (ESR), 2025 is shaping up to be a year of intensified compliance pressure for regulated firms. Many financial institutions, fund managers and fintech companies are still adapting to the operational demands of these regimes. Treating ESR and tax filings as once-a-year box-ticking exercises is no longer viable.

This guide unpacks the key developments, risks and opportunities, and how regulated entities can get ahead of scrutiny with a proactive approach.

UAE Corporate Tax: What Has Changed

Since the UAE’s Corporate Tax (CT) came into effect, regulated firms have had to rethink their structures and reporting obligations. The 9 percent tax rate on taxable profits above AED 375,000 may appear straightforward, but in practice, compliance involves deeper governance alignment and documentation.

Key developments include:

• Broader transfer pricing documentation requirements

• Narrower interpretations of free zone qualifying income

• Heightened oversight on expense deductibility

According to Faisal Niaz Tirmizi, UAE tax advisor and public policy consultant, “The era of light-touch enforcement is over. Firms must now demonstrate real economic rationale behind their structures, or risk being caught out in tax reviews.”

For firms regulated by DFSA, FSRA, the UAE Central Bank or VARA, this also means ensuring their tax filings are consistent with regulatory disclosures. Any discrepancy may trigger investigations or compliance reviews.

ESR and the New Standard for Substance

Economic Substance Regulations remain in force, particularly for businesses involved in holding company activities, fund management, lease-finance or service centre operations. While many believe that being licensed is sufficient, ESR obligations are separate and require annual self-assessments and reporting.

Core ESR requirements include:

• Demonstrating real decision-making within the UAE

• Maintaining qualified staff and physical premises

• Recording board-level resolutions and strategic direction

The key challenge firms face is aligning legal structure with operational substance. Regulators are no longer tolerating hollow entities or outsourced proxies.”

Penalties for ESR non-compliance range from AED 50,000 to AED 400,000, and can have wider implications on licensing renewals or investor relations.

Filing and Documentation Gaps

Many firms underestimate the internal work required to stay compliant. Mistakes often stem not from tax complexity, but from poor record keeping and disjointed internal processes. Frequent issues include:

• Missing or backdated board minutes to justify key business decisions

• Unclear delineation between management and ownership roles

• Lack of contemporaneous documentation for ESR or transfer pricing defence

What used to be acceptable under a more relaxed enforcement environment is now being revisited under audit or during FTA reviews. Firms must assume that any data submitted will be tested for alignment across departments and filings.

The Role of External Support

Not all compliance challenges can or should be handled in-house. For many boutique firms, fintechs and fund managers, outsourcing tax compliance and ESR documentation can be a strategic decision.

Advisors bring not only technical knowledge, but also a familiarity with regulator expectations and emerging interpretations. This is particularly valuable when firms operate across multiple regulatory zones — such as DIFC, ADGM and mainland — or involve nominee arrangements or offshore elements.

At j. awan & partners, we have observed that early consultation leads to faster approvals, fewer remediation cycles and greater investor confidence.

Technology as a Compliance Advantage

Modern compliance requires more than just people and paper. Smart use of digital tools can significantly reduce human error, ensure audit-readiness and create a stronger governance culture. Some practical tools include:

• ESR classification platforms with built-in logic

• Secure board portals for resolutions and compliance records

• Filing calendars and real-time dashboards for status tracking

When layered correctly, these tools can centralise responsibility while maintaining department-level visibility.

Final Thoughts

The new tax and compliance landscape in the UAE requires firms to adopt a forward-looking posture. Economic substance and corporate tax obligations are no longer independent of broader strategic and governance conversations.

Regulated firms that build systems early — and test their frameworks before an audit or inquiry — will be best positioned to thrive in a market that rewards transparency, structure and credibility.

j. awan & partners offers end-to-end tax compliance, ESR support and regulatory advisory across the GCC. Whether you need help with filings, documentation, or strategic structuring, our team is here to guide you through the full compliance lifecycle.

To discuss your compliance needs or schedule a confidential consultation, get in touch with j. awan & partners today.