Economic Substance and UBO rules for new UAE companies

Founders setting up in the UAE often come across two sets of rules in older advice: the Economic Substance Regulations (ESR) and the Ultimate Beneficial Owner (UBO) rules. The position has changed since 2024. This guide explains what a new company needs to do today.

Economic Substance: no longer required for new periods

The ESR were introduced in 2019 and set out in Cabinet Resolution No. 57 of 2020. They required companies carrying on nine "relevant activities", such as holding company, headquarters, distribution and service centre and intellectual property business, to notify and report on their substance in the UAE.

On 14 October 2024 the Ministry of Finance announced Cabinet Decision No. 98 of 2024, which amends Resolution No. 57 of 2020. The key points are:

• economic substance notifications and reports are no longer required for financial years ending after 31 December 2022;
• the Ministry said the change aligns with the implementation of the UAE's federal corporate tax system;
• companies remain responsible for their compliance obligations for earlier years, including responding to requests from regulators or the Federal Tax Authority (FTA).

For a company formed in 2024 or later, there is therefore no ESR notification or report to file. Substance still matters, however. Under the Corporate Tax Law, a free zone company must maintain adequate substance in the UAE to be a Qualifying Free Zone Person.

UBO: who is the real beneficiary?

Cabinet Decision No. 109 of 2023 on the Regulation of Procedures of the Real Beneficiary was issued on 6 November 2023. It applies to legal persons licensed or registered in the UAE, including those in commercial free zones. It does not apply to companies wholly owned by the federal or a local government (or their wholly owned companies), or to the financial free zones, which have their own rules.

A real beneficiary is a natural person who ultimately owns or controls the company, directly or indirectly, through:

• 25% or more of the company's capital;
• 25% or more of the voting rights; or
• control by other means, such as the right to appoint or remove the majority of directors.

Ownership is traced through any chain of companies. If no person can be identified on these tests, the natural person who holds a senior management position is treated as the beneficial owner. Companies owned by a company listed on a regulated market with sufficient transparency requirements are exempt from the duty to obtain and keep beneficial owner data.

What a new company must keep and file

Under the Decision, a company must:

• Keep a Real Beneficiary Register with each beneficiary's full name, nationality, date and place of birth, address, passport or ID details, the basis and date of becoming a beneficiary and the date of ceasing to be one.
• Keep a Register of Partners or Shareholders showing the shares held, share categories, voting rights and dates, with a copy of each holder's ID or passport.
• Submit both registers to the registrar within 60 days of licensing or registration.
• Report changes to the registrar within 15 days of the amendment or change.
• Provide additional data requested by the registrar within 14 days.
• Identify nominee board members, who must notify the company within 15 days of their appointment and of any change.
• Keep records for five years after the company is dissolved or liquidated.

DIFC and ADGM

Companies in the two financial free zones follow their own regimes: the DIFC Ultimate Beneficial Ownership Regulations, which also use a 25% threshold and require changes to be notified to the DIFC Registrar within 30 days, and the ADGM Beneficial Ownership and Control Regulations 2022.

Corporate tax registration is separate

UBO filing does not register a company for corporate tax. Under FTA Decision No. 3 of 2024, a resident company incorporated on or after 1 March 2024, including a free zone company, must register for corporate tax within three months of incorporation. A foreign company effectively managed and controlled in the UAE must register within three months of the end of its financial year. See our corporate tax service.

What to do

• Map your ownership chain to the ultimate individuals before you incorporate, including any trusts, holding companies or nominee arrangements.
• Prepare the Real Beneficiary and shareholder registers with your licence application and submit them within 60 days.
• Diarise the 15-day deadline for reporting any change in shareholders, beneficiaries or nominee directors.
• Register for corporate tax within three months of incorporation, and plan substance early if you intend to rely on the free zone regime.

Our company setup and PRO and compliance services cover these steps.

Sources

• Ministry of Finance: Amendment to Cabinet Decision on Economic Substance Requirements
• Ministry of Finance: Cabinet Resolution No. 57 of 2020
• Deloitte: Amendment to the Economic Substance Regulations
• PwC: Cabinet Decision No. 98 of 2024
• Ministry of Economy: Cabinet Decision No. 109 of 2023 (English)
• UAE Legislation: Cabinet Decision No. 109 of 2023
• Ministry of Economy: Briefing on the Real Beneficiary procedures
• DIFC: Ultimate Beneficial Ownership Regulations
• ADGM: Beneficial Ownership and Control Regulations
• PwC: FTA Decision No. 3 of 2024 on registration timelines
• KPMG: Timelines for corporate tax registration

This page gives general information as at the date shown and is not advice for your specific situation. Rules in other countries are summarised for orientation; your home-country position should be confirmed before you act.