UBO Register and Economic Substance Rules for a New UAE Free Zone Company

Two compliance topics get mixed up when a founder sets up a UAE free zone company. The first is the ultimate beneficial owner (UBO) rules, which are live and apply to your company from the start. The second is economic substance, where the separate reporting regime has been cancelled for recent years but the idea of substance has moved into Corporate Tax. This article takes them in turn.

The UBO rules

The rules sit in Cabinet Decision No. 109 of 2023. Its scope covers licensed or registered legal persons in the country, including the commercial free zones. If your company is in a commercial free zone, the decision applies to it.

The decision defines the beneficial owner as the person who owns or exercises ultimate control over a legal person through direct or indirect ownership of 25% or more of the capital, or 25% or more of the voting rights. Control by other means also counts, such as the right to appoint or dismiss the majority of the directors.

What your company has to keep and send

1. A Beneficial Owner's Record. The company creates it within 60 days of its existence and updates it within 15 days of learning of a change.
2. A Register of Partners or Shareholders. The company records any change within 15 days of becoming aware of it.
3. A record of nominee board members, if you have any. A nominee board member must tell the company within 15 days of taking on that role.
4. A submission to the registrar. The company sends the Beneficial Owner's Record and the Register of Partners or Shareholders within 60 days of licensing and registration.
5. Updates to the registrar. The company sends any change within 15 days, and answers a request for additional data within 14 days.

The registrar is defined as the authority that supervises the trade names register for the type of establishment. For a free zone company, confirm with your free zone which office and which portal receives the filing.

What happens if you do not comply

Cabinet Decision No. 132 of 2023 sets administrative penalties for breaches of the UBO decision. The penalties escalate with repeat violations, and for a third violation the registrar may also suspend the commercial licence and close the commercial store. The suspension can be released once the company pays the fine and fixes the breach. The fine amounts sit in a schedule to the decision, so read that schedule before you assume a number.

Economic substance reporting

In 2024 the Ministry of Finance announced the cancellation of economic substance reporting requirements for companies for financial years ending after the end of 2022, following Cabinet Decision No. 98 of 2024. In practice, a company with a financial year ending in 2023 or later no longer files an economic substance notification or report.

The Ministry added that companies remain responsible for compliance obligations for prior years, for information requests from regulators or the Federal Tax Authority, and for penalties imposed by the Federal Tax Authority. A company set up in 2024 or later has no prior year to worry about under the old regime, but a company that existed before 2023 should check its history.

Substance still matters for the 0% Corporate Tax rate

Substance now shows up in the Qualifying Free Zone Person test. The FTA guide for free zone persons lists adequate substance as the first condition for the 0% rate. The guide says it must maintain adequate substance in a free zone, or in a designated zone for distribution, throughout the tax period.

The same guide says the Free Zone Person must prepare and maintain audited financial statements regardless of the amount of revenue it earns. A licence on its own does not show where the work is done. If you want the 0% rate, decide early where the work is done, who does it and what it costs.

A short checklist for the first 60 days

1. Identify every natural person who holds 25% or more, directly or through other companies, or who controls the company in another way.
2. Write up the Beneficial Owner's Record and the Register of Partners or Shareholders, with the identity details the decision lists.
3. Ask your free zone how and where the filing is made, and diarise the 60 day limit from licensing.
4. Set a 15 day rule inside the company: any change in shares, directors or control is recorded and reported straight away.
5. If you plan to claim the 0% rate, record where your income generating activity happens and who does it.

DBC packages start from USD 1,948 (AED 7,150). See /pricing or /pricing/calculator. Confirm with your free zone where the filing goes before the 60 day limit runs out.

Talk to DBC about your UAE company

Tell us where you live, what you sell and which free zone you are considering. We will explain the steps, the documents and the costs before you commit. Book a Free Discovery Call