Rules of substance (economic presence; substance ) of a company in the UAE: what do you need to know?

The United Arab Emirates (UAE) is attracting the attention of entrepreneurs and investors worldwide due to its favourable business climate and constant desire for development, reflected in zero income taxes, speed and automation of business processes. However, according to the UAE Economic Substance Rules, companies must maintain substance (economic presence) to operate in the UAE. Let's examine the UAE's main standard requirements for substance with Antwort Law.

The substance of a company in the UAE is determined by its physical presence and operational activities in the country. Key requirements include:

Registered physical office: The company must have one to conduct its main operating activities, including meeting with clients, holding meetings, processing documents and carrying out other business processes, business transactions and client meetings.

A physical office is an important attribute of the legal functioning of a company in the UAE. Large international companies opening representative offices in the UAE often seek to construct their buildings for their office; other companies prefer to rent office space in the business centres of Dubai and Abu Dhabi to be closer to business activity and improve their visibility in the market.

The physical office must comply with all norms and requirements set by the registration and regulatory authorities in the UAE: building and fire codes, landlord rules and regulations, and employee safety and convenience.

Local Employees: Certain types of businesses in the UAE require that the company have local employees. It is an important requirement based on the UAE government's policy to stimulate local employment and provide jobs for citizens. Here are a few examples of types of businesses that require local employees:

Business involving government agencies: Some industries involving government contracts or serving government clients require local employees, such as government procurement, education, healthcare, etc.

Retail: Opening stores and retail outlets in the UAE often requires local employees, who can be appointed salespeople, administrators, cashiers, etc.

Construction and Real Estate: Companies involved in construction and real estate development in the UAE may also be required to hire local employees. This may include meeting local labour requirements and recruiting specialists for construction sites and facilities.

The number of local employees a company requires may vary depending on the area’s size, business type, and government policies. Local employees must meet all employment and work permit requirements set by UAE law, including working conditions, wages, and social benefits.

Local Bank Account: The company must have an open bank account with a UAE bank to manage the company's finances in the country.

Some organizations, particularly those involved in high-risk industries or those with foreign ownership, may require a longer and more thorough review process, resulting in additional delays. In addition, the opening process may include various difficulties: the need to provide additional documents, negotiations with banks on terms of service, and possible delays due to bureaucratic procedures.

In our experience, opening a bank account, especially for entrepreneurs with high-risk passports, is one of the most difficult processes when registering a company. Antwort Law experts are always ready to offer comprehensive services for opening and maintaining bank accounts, helping you overcome difficulties and reduce the time needed.

​​Tax Obligations: The company must comply with all tax obligations to the UAE government, namely

- payment of tax payments, including income tax, value-added tax (VAT), property tax and other taxes applicable to its activities. Please correct deadlines or incorrectly calculate taxes to avoid fines and penalties from tax authorities.

- provision of reporting on financial activities and other reports: tax returns, financial reports, and other documents necessary to verify the correctness of tax payments and compliance with tax legislation.

Licensing: In the UAE, licensing is mandatory for many activities, and companies need to obtain special licenses and permits from the relevant government authorities to legally carry out their activities: for example, in the fields of healthcare, education, financial services, alcohol trading, construction, real estate, tourism, transport and others.

Compliance with licensing requirements is an important aspect of business in the UAE and allows companies to operate legally and safely in the local market.

The substance is an important aspect for companies wishing to conduct successful business in the UAE, and its requirements must be considered individually in the context of your activities. Antwort Law experts will help you clearly define the substance criteria for your business and help with company registration, account opening, transaction support, and other legal issues. Our company provides high-quality legal services not only in the UAE but throughout the world. Regardless of your location or business size, our experienced lawyers and consultants will provide professional support and help you achieve your goals.

Diana Gulevskaya

Partner
Antwort Law