ESR – Lease–Finance Business


Lease-Finance Business encompasses Licensees that offer credit or financing* for any kind of consideration**, and includes financing to Connected Persons  (e.g., intra-group financing). 

  *Offering credit or financing includes:

  • making loans to related or unrelated parties,
  • entering into finance leases in relation to assets other than land, and
  •  providing credit in the form of hire purchase agreements, long term credit plans, and other types of financing arrangements  (including cash pool arrangements). 

  **Consideration includes:

  • interest,
  • origination and processing fees,
  • gains upon conversion of a loan into the share capital of the debtor, and
  • late payment penalties.

Core Income Generating Activities (CIGA’s)

• Agreeing funding terms

• Identifying and acquiring assets to be leased (in the case of leasing)

• Setting the terms and duration of any financing or leasing

• Managing any risks

• Monitoring and revising any agreements

Special points to consider

Out of scope- The investment in bonds or similar securities or debt instruments that are traded on a regulated exchange would also not be considered a Lease-Finance Business.

• Licensees engaged in Banking, Insurance, Headquarters and Investment Fund Management Business may also perform lease or financing activities as a normal part of their business operations. To prevent duplicate reporting, such Licensees are not also considered engaged in a Lease-Finance Business and will not need to separately demonstrate economic substance in respect of any ancillary Lease-Finance activities.

Regulatory Authority

• UAE Central Bank

• Competent Authority in Financial Free Zone

• Competent Authority in Free Zone

What licensee has to do?

• File notification with the regulatory authority before due date.

• Only Licensees that earn income from a Relevant Activity during the relevant financial period and that are not exempt from the Regulations are required to demonstrate economic substance in the UAE and file an economic substance return. Economic substance report must be filed within 12 months from the end of the relevant financial period.

Who has to file the notification?

  Every Licensee and Exempted Licensee is required to submit a Notification to their respective Regulatory Authorities.

Failure to comply with regulation:

  •  Penalties between AED 20,000 to 400,000
  •  Exchange of information with foreign competent authority
  •  Suspension or withdrawal or cancellation of license