Adequate Substance

Frequently Asked Questions

A Qualifying Free Zone Person must possess and be able to demonstrate adequate substance within a Free Zone relative to the nature and scope of its activities and Qualifying Income earned. This implies that the Qualifying Free Zone Person must have sufficient staff, assets, and incur adequate operating expenditure within the relevant Free Zone or any other Free Zone while undertaking core income-generating activities.

Outsourcing activities to related or unrelated persons in a Free Zone is acceptable as long as the Qualifying Free Zone Person maintains control and supervision over the outsourced activities.

The assessment of ‘adequate substance’ depends on the specific circumstances of the Qualifying Free Zone Person and must be evaluated on a case-by-case basis. Factors considered in this assessment include the nature and extent of the activities performed, Qualifying Income earned, and other relevant facts and circumstances.

A Qualifying Free Zone Person must maintain its economic and operational substance within the Free Zone where it is established or registered, or in any other Free Zone. Operations carried out on behalf of and under the direction of the Qualifying Free Zone Person by related or unrelated parties in the exact same or another Free Zone assist in evaluating the Qualifying Free Zone Person’s substance.

Further details regarding the transition from the existing Economic Substance Regulations after the UAE Corporate Tax regime’s implementation, as well as any substance-related reporting and compliance obligations for Qualifying Free Zone Persons, will be given in course of time.

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