Relocating to Dubai: how much substance do you really need in the UAE?
Contents
Introduction
How much substance do you really need in the UAE after relocating to Dubai? The short answer fits in one phrase: substance proportionate to the business carried on, meaning premises that are actually used, competent people present on site, operating expenses incurred locally and decisions taken in the UAE. No text sets a minimum number of square metres or employees applicable to all activities.
The question is tricky because it covers two distinct requirements, set out in different texts. On the one hand there is the substance of the individual, which determines your own tax residence, and on the other the substance of the entity, which determines the tax treatment of the UAE company. Confusing the two leads to securing the company while leaving the director exposed, or exactly the opposite.
A residence visa, a registered-office lease and a Free Zone licence do not constitute substance. They are administrative conditions for existing, which both the UAE Federal Tax Authority and the French tax authorities regard as a starting point, not as proof. Everything else must be demonstrated through dated, documented facts.
This article describes the two requirements, the texts behind them, the elements actually checked during an audit and how to calibrate credible substance without oversizing your organisation. It follows on from our analysis of the situations in which a Dubai company managed from France accumulates tax risks, this time answering the opposite and more constructive question.
One point to bear in mind before going into detail. Substance is not a form to be filled in once, but a factual situation to be maintained every financial year, and the level of requirement rises with business volume, with the share of French clients and with the tax advantage sought. Relocating to Dubai as an entrepreneur therefore means setting up an organisation there that genuinely works.
What the word substance really means in the UAE
The term substance has no single definition in international tax law. It refers to all the human, material and financial resources that an individual or an entity actually devotes to carrying on an activity in a given territory. The OECD's work on base erosion, followed by the commitments made by the United Arab Emirates, turned this economic notion into verifiable legal obligations.
In the UAE, three sets of rules apply cumulatively. Domestic visa and licensing law sets the conditions for establishment, the corporate tax that came into force in June 2023 makes the preferential Free Zone regime conditional on adequate substance, and the Economic Substance Regulations impose annual tests on certain activities. Each has its own criteria, and satisfying one does not mean satisfying the others.
On top of this comes the French perspective, which is usually decisive in practice. The French tax authorities do not apply UAE law but look, through the same material facts, at whether the company is managed from France and whether the taxpayer has genuinely moved their life. The same substance file is therefore used for two examinations of a different nature.
Substance of the individual, substance of the entity
Personal substance answers the question of where you live. It is measured by a home available all year round, actual physical presence, an established family and social life, local bank accounts and day-to-day expenses incurred locally. It is relevant to Article 4 B of the French Tax Code (CGI) and to the tie-breaker rules of the 1989 France–UAE tax treaty.
Entity substance answers a different question: where is the business really carried on? It is measured by business premises, qualified employees, local operating costs and decisions made in the UAE. The two demonstrations can perfectly well diverge from one another, and it is this gap that drives most of the tax reassessments we come across.
The expatriate's personal substance and tax residence
Article 4 B of the French Tax Code (CGI) sets out four alternative criteria for French tax residence: the home, the principal place of stay, the main professional activity and the centre of economic interests. Meeting a single criterion is enough to maintain French residence, which explains why a poorly prepared departure remains reversible in the eyes of the authorities. Personal substance means neutralising all four of these entry points, not just the visible one.
The home is the weightiest criterion because it relates to the family's usual place of life. A spouse who has stayed in France with children in school points to a French home, however long the stays in Dubai. The 1989 treaty does not correct this situation: it only applies once a genuine dual residence has been established, not to arbitrate between a French life and a token UAE address.
The principal place of stay is assessed in days, and it is the criterion that the 183-day rule summarises poorly. Meeting it is not enough, whereas failing to meet it is often enough to lose the case. We recommend continuous tracking of entries and exits, because in practice the burden of proving presence falls on the person claiming to have left.
Permanent home, physical presence and daily life
A UAE lease signed to satisfy a visa formality proves nothing on its own. What is convincing is evidence of actual occupation: water and electricity consumption, a phone contract, home insurance, card statements used locally, children enrolled in a school in the emirate. These ordinary documents carry more weight than a certificate, because they are produced by third parties.
Keeping a home in France is not prohibited, but it must cease to be the centre of your life. A property that is let out, a genuinely secondary pied-à-terre or a home occupied a few weeks a year can be defended, whereas a residence left furnished and available all year round feeds the home criterion. The line is drawn on the basis of a body of consistent evidence, not an arithmetical rule.
Company substance and the Qualifying Free Zone Person regime
Since June 2023, the UAE has applied a corporate tax with a standard rate of 9% above a profit threshold set by local regulations. This rate is a public order of magnitude, to be checked at the date of the transaction, as the implementing texts have been clarified several times. The 0% regime has not disappeared, but it has become conditional and documented.
Qualifying Free Zone Person status makes it possible to keep a zero rate on qualifying income only. It requires, cumulatively, adequate substance in the UAE, compliance with transfer pricing rules, no excluded income above a de minimis threshold and audited financial statements. Failure to meet any one of these conditions results in the loss of the regime, in principle for the current financial year and the following ones.
The word adequate is deliberately relative. UAE regulations do not require a minimum size but a proportion between the resources committed locally and the income declared. A company invoicing large amounts with a shared office and no employees shows an imbalance that is immediately visible in its own financial statements.
Qualifying income, de minimis threshold and adequate substance
The classification of income comes before the examination of substance. Certain flows, in particular those derived from Mainland clients or falling within expressly excluded categories, cannot benefit from the zero rate, and their amount is compared with a de minimis threshold expressed both as a percentage of revenue and as an absolute value. Exceeding this threshold tips the entire profit into the standard regime.
Adequate substance then requires the income-generating functions to be performed in the Free Zone, using the company's own resources or a subcontractor that is itself supervised from the UAE. Outsourcing is not prohibited, but it must remain managed from within the zone, with documented oversight. A structure that merely recharges a service performed elsewhere does not pass this test.
The Economic Substance Regulations and the activities concerned
The Economic Substance Regulations, introduced in 2019 and subsequently revised, impose an economic substance test on entities carrying on a so-called relevant activity: banking, insurance, fund management, intra-group financing and leasing, headquarters, shipping, holding company, intellectual property, distribution and service centre. An ordinary consulting business does not always fall within this list, whereas a holding company or a royalty structure almost always does. The check therefore starts with the precise identification of the activity carried on.
The test rests on three elements: direction and management from the UAE, local performance of the Core Income Generating Activities and adequate resources in terms of staff, premises and expenditure. Added to this are annual reporting obligations, including a notification and, where applicable, an economic substance report. Reporting failures are penalised regardless of the substance of the matter.
The practical scope of this framework should be appreciated. It has created, in the UAE itself, a paper trail that the French tax authorities can rely on: an entity that declares locally that it has neither employees nor premises provides, through its own declaration, an argument against its substance. Consistency between the UAE and French filings is therefore not optional.
Core Income Generating Activities and reporting obligations
Core Income Generating Activities are the functions that genuinely create the entity's income: negotiating and signing contracts for a headquarters, making investment decisions for a holding company, developing and exploiting assets for an intellectual property structure. Their actual location in the UAE is the heart of the test, well ahead of the question of premises. An entity unable to identify these functions and say who performs them has already lost the benefit of the regime.
The reporting burden goes hand in hand with the test. An annual notification identifies the relevant activity carried on, then an economic substance report details the resources, headcount and expenditure committed locally. As these documents become comparable from one year to the next, a declining substance trajectory is noticed immediately.
Premises, staff and expenditure: what is actually checked
In an audit file, substance is read first and foremost in the accounts. An inspector looks for rent, salaries, local social contributions, invoices from UAE service providers, bank charges and day-to-day operating expenses. A structure whose costs come down to an annual licence and accounting entries economically has no means of operating.
Staff carry more weight than floor space. An employee who is genuinely employed, paid locally, holds a work visa and whose duties match the declared activity is worth more than an empty office floor. Conversely, relying exclusively on a local nominee with no decision-making power is read as administrative window dressing.
Premises must be used, not merely rented. A registered-office address shared by several hundred entities, with no identified workstation or actual access, is now a negative signal well known to tax authorities. Setting up a company in Dubai therefore means choosing between a genuine set-up and an organisation that will not stand the test of time.
The registered-office address and its limits
A registered-office address has a legitimate use at the start, while obtaining a licence and a visa. It becomes a risk when it continues beyond the first financial year while the business grows, because the gap between declared income and committed resources widens every year. The question is not whether a registered-office address is permitted, but whether it remains consistent with the volume of business.
We see the same reasoning in the other jurisdictions in which we assist clients. Whether it is a matter of setting up a company in Malta or establishing a company in Andorra, the authorities apply an identical grid, based on the resources actually committed. The notion of substance is now common to all financial centres.
Where decisions are made and documented governance
Material substance is worthless if decisions are taken elsewhere. The notion of place of effective management, used in treaties based on the OECD model, links the company's residence to the place where its senior management is actually exercised. A UAE office occupied by an employee does not prevent the company from being French through its management.
The decisive elements are concrete: where general meetings and board meetings are held, who actually signs major contracts, where bank instructions come from, and where investment and commercial policy decisions are made. Minutes must be kept in the UAE, on the stated dates, with participants who were actually present. Documents drafted after the fact are easy to spot.
Governance is also proven through digital traces. Login addresses, document metadata, the times decision emails were sent and bank approvals form a body of evidence that no one can control retroactively. This is why substance must be built in real time rather than reconstructed.
What the French tax authorities examine on their side
The French tax authorities do not rule on whether your structure complies with UAE rules. They look for two things: whether you have remained a French tax resident within the meaning of Article 4 B, and whether the foreign company should be attached to France through its place of management, through a permanent establishment or through anti-abuse provisions. Each of these routes has its own consequences, and they can be combined in the same case.
The provisions relied upon are well known: Article 209 I for the attribution of profits, Article 155 A for service fees received by a foreign structure, Articles 123 bis and 209 B for holdings in entities subject to a privileged tax regime, and the abuse of law procedure. What they have in common is that they neutralise a structure without substance, whatever its country of incorporation.
The tax residence certificate issued by the Federal Tax Authority is a useful but not decisive element. It attests to a local registration, not to the reality of a life, and it does not prevent France from reaching its own characterisation based on the facts. A change of residence is never proven by a single document, whether in the UAE, Qatar or another Gulf financial centre.
Building substance proportionate to your business
The right method is to size substance on the basis of the actual business, not on the basis of a supposed regulatory minimum. A consulting business carried on alone, with an international client base and an actual presence in the UAE, can be defended with modest but consistent resources. A trading business or a holding company receiving large flows, on the other hand, requires visible and growing resources.
Three questions make it possible to self-assess a file. Would a third party reconstructing your financial year week by week place your life in the UAE, your decisions in the UAE and your operating resources in the UAE? If any one of the three answers is no, the substance is incomplete by design.
The approach remains the same whatever the destination under consideration. Setting up a company in Portugal, opening a structure in Mauritius, creating a company in the Bahamas or opening a company in Panama: each jurisdiction applies its own tests, but all converge on the requirement for business genuinely carried on locally.
The substance file, document by document
A useful file is built up over the financial year and comes down to a few families of documents: occupancy titles and evidence of use of the premises, employment contracts and staff visas, dated minutes and records of decisions, audited financial statements, local filings and proof of presence. The aim is not exhaustiveness but consistency between the documents.
Weak points should also be acknowledged rather than concealed. A file that admits a few decisions taken during trips to France, placing them within a clearly UAE-based whole, stands up better than a file presented as perfect and contradicted by a single document. Overall credibility is built on the sincerity of the evidence provided.
Comparison table of substance levels
Organisation in the UAE | Resources committed locally | 0% Free Zone regime | French exposure |
Registered-office address only, no employees | Shared address and annual licence | Very difficult to defend | High risk |
Shared office, director present | Workstation and actual presence | Possible if business is modest | Moderate risk |
Own office, one local employee | Rent, salary and local contributions | Defensible with documentation | Reduced risk |
Local team, decisions made on site | Staff, premises and running costs | Compliant if income is qualifying | Low risk |
Holding company without its own resources | No identified staff or premises | Excluded, substance test failed | High risk, anti-abuse provisions |
This table describes typical configurations, not certainties. Each row must be qualified in light of the specific facts of the case, the activity carried on, the applicable treaties and the administrative guidance in force at the date of the transaction, so that an individual assessment remains essential before any decision.
Testimonial from an expatriate entrepreneur
The director of a software engineering consultancy, based in a Free Zone for three financial years, consulted us after receiving a request to justify his substance. His organisation relied on a shared office, a licence renewed every year and no employees, for a volume of business growing strongly. He summed up his situation as follows.
“I had ticked all the administrative boxes: licence, visa, bank account, residence certificate. Nobody had told me that the gap between my income and my resources on the ground would, on its own, become the main criticism.”
The review showed that the income-generating functions were indeed performed from the UAE, but without any usable evidence. The reorganisation involved a lease for a private office, the recruitment of a first local employee and regular meetings of the company's governing bodies on site, so that substance would become verifiable without reconstruction. Profiles, amounts and dates have been changed to preserve anonymity.
Frequently asked questions
Is there a minimum number of employees in Dubai?
No, no UAE text sets a numerical threshold applicable to all activities. The regulations require adequate resources, that is, resources proportionate to the income declared and to the functions actually performed locally.
Is a registered-office address enough for the Free Zone regime?
It makes it possible to obtain a licence, but it does not demonstrate adequate substance once the business grows. Beyond the first financial year, the gap between income and committed resources becomes the main point of weakness.
Does the UAE tax residence certificate prove my substance?
No, it attests to registration with the UAE tax authority and is used to apply the treaty. It does not exempt you from proving actual presence or from establishing that management is exercised from the UAE.
Do the Economic Substance Regulations cover a consulting business?
Not systematically, as the framework only covers an exhaustive list of relevant activities. A holding company, a royalty structure or a headquarters, on the other hand, fall within it in most configurations.
Can the business be subcontracted while remaining eligible for the zero rate?
Subcontracting is permitted if it is carried out in the UAE and supervised from the zone, with documented oversight. Simply recharging services performed elsewhere does not pass the substance test.
Can these rules still change?
Yes, UAE implementing texts and French administrative guidance change regularly. The thresholds and rates cited here are public orders of magnitude, to be checked at the date of your transaction.
Conclusion
The substance required in the UAE is not just a number of days, an office floor area or a headcount. It consists of personal substance, which determines your own tax residence, and entity substance, which determines the company's regime and its resilience to French anti-abuse provisions. Both are demonstrated through dated, documented and consistent facts.
The useful question is therefore not what minimum would suffice, but whether your current organisation would make sense to a third party reconstructing your financial year. Substance proportionate to the business, built from the first financial year and then maintained, takes less effort than a retrospective reconstruction carried out under audit.
The thresholds, rates and conditions mentioned in this article are public orders of magnitude, which change over time and must always be assessed in light of a personal situation. Only an individual review can determine the level of substance suited to your business and measure the French exposure that remains.
Are you preparing your move to the UAE, or would you like to check that your current substance would withstand a tax audit? You can request a personalised review from Coreway Consulting to have your on-site resources, your governance and your French tax situation audited.
