Introduction to Corporate Substance in UAE

Corporate Substance in UAE is crucial. UAE-based companies particularly in the context of international business, regulatory compliance, and tax considerations.

The purpose of this publication is to address the UAE’s stand and requirements for UAE based companies together with practical implications of lacking the required legally and practical leve of substance within the UAE.

Corporate Substance in UAE – ESR Regulations

The UAE has implemented Economic Substance Regulations (ESR) to align with international standards and combat tax evasion. These regulations require companies to demonstrate that they have substantial activities in the UAE. This implies:

Physical Presence

Having a real office space and physical presence in the UAE. Setting up a company is indeed possible without a separate office, most free zones provide packages that include flexi solutions however these packages will not be good enough for banking institutions which will expect a closable office.

This can be an owned or leased office that is suitable for the nature and scale of the business.

The office should be equipped with the necessary tools and facilities required to conduct business operations effectively.

Management and Control

Key management decisions should be made within the UAE.

This implies that local board meetings should be held in the UAE with a quorum of directors physically present. The minutes of these meetings should be documented and kept in the UAE.

Key strategic decisions should also be made in the UAE. This involves having senior management or directors based in the UAE who have the authority to make significant decisions.

This is why banks in the UAE will require the manager of the entity to hold a visa and Emirates ID. Without it banks will not receive account applicants.

Employee and Operational Expenditure

UAE Companies should hire local staff and incur adequate operational expenditure in the UAE.

Companies should employ a sufficient number of qualified employees who are physically present and perform their duties in the UAE. The number of employees should align with the nature and scale of the business activities.

Companies should appoint senior executives and managers who are based in the UAE and have the necessary expertise to manage the day-to-day operations of the business.

The more personnel that is based in the UAE the better but to the very minimum key personnel should be UAE residents and be actively involved in the business.

Companies should likewise incur adequate operational expenditure in the UAE relative to the level of income derived from the relevant activity. This includes costs such as salaries, rent, utilities, and other operational expenses.


UAE based companies should engage local service providers such as legal, accounting, and consulting firms to support the business operations, in parallel to using UAE-based banks and financial institutions for the company’s financial transactions and services.

Tax Benefits and Double Taxation Avoidance

The UAE offers significant tax advantages, including reduced corporate tax and personal income tax. However, to benefit from these advantages and double taxation treaties, companies must demonstrate substantial economic activity in the UAE. Without sufficient substance, companies might not qualify for:

  • Tax Residency Certificates: Essential for accessing treaty benefits.
  • Avoidance of Double Taxation: Ensuring that income is not taxed both in the UAE and the country of the company’s parent entity.

Operational Efficiency and Strategic Growth & Corporate Substance in UAE

Substantial operations in the UAE can lead to operational efficiency and strategic growth by leveraging:

  • Local Market Knowledge: Access to regional market insights and business opportunities.
  • Strategic Location: UAE’s strategic geographical location offers access to markets in the Middle East, Africa, and South Asia.
  • Infrastructure: Utilization of the UAE’s world-class infrastructure, logistics, and connectivity.
  • Credibility: Substantial presence enhances the credibility of UAE-based companies, fostering trust and confidence among: (a) Investors: Attracting foreign direct investment (FDI) and venture capital; and (b) Business Partners: Building strong relationships with suppliers, customers, and other stakeholders. Both almost impossible from abroad.

Regulatory and Legal Compliance

Meeting substance requirements ensures compliance with local laws and regulations, which is crucial to protect the company’s legal standing and rights within the UAE, and also ensure the smooth processing of licenses, permits, bank compliance and other regulatory approvals.

Corporate Governance and Risk Management

Having a substantial presence in the UAE aids in better corporate governance and risk management by facilitating oversight and control over business activities and leveraging local expertise in legal, financial, and administrative matters.

ESR Filings and Importance of Corporate Substance in UAE

UAE based entities should ensure that they comply with the ESR filings’ requirements. ·  This implies conducting regular internal audits and compliance checks to ensure adherence to ESR and other regulatory requirements.

The timely filing of ESR notifications and economic substance reports, as the case may be, is crucial.

Conclusion to Corporate Substance in UAE

In summary, by implementing these measures, UAE companies can establish and maintain substantial operations in the UAE, ensuring compliance with ESR, benefitting from tax advantages, enhancing operational efficiency, building credibility, and managing risks effectively.


We hope this publication will help you understand the importance of corporate substance in the UAE and remain available for any questions regarding this post of general application.

For more information published in English you can visit all our publications at this link as well as the videos in English of our Partner Maria Rubert.

*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the importance of corporate substance in the UAE.