United Arab Emirates – Understanding Substance

The concept of substance is relatively new for many business professionals, yet it is increasingly important to navigate.

What is Substance?

Substance refers to the requirement for companies to demonstrate adequate infrastructure for conducting business. This includes having appropriately sized physical office space and a sufficient number of qualified employees to manage daily operations. While some company functions can be subcontracted to third parties, demonstrating substance is essential.

What Are the Requirements?

Requirements vary depending on the type of business activity. Certain “Relevant Activities” necessitate more robust substance compared to others.

Holding Companies

While holding companies are classified as Relevant Activities, there is a distinction between those that are part of a group or international organization and pure equity holding companies. A typical holding company actively manages its subsidiaries and offers services such as treasury management. In contrast, a pure equity holding company passively holds shares and only receives dividends. Consequently, substance requirements for pure equity holding companies are generally less stringent.

It’s crucial to assess substance requirements on a case-by-case basis, tailored to the specific circumstances of each company.