Adapted and expanded from Dr. Ahmad Helwani’s original LinkedIn publication. This website edition includes current technical updates and practical examples.

A free-zone licence is the start of the review

A free-zone company should be able to explain what it does, who performs the work and where that work takes place. These facts matter when assessing adequate substance for Qualifying Free Zone Person status. The FTA’s summary of Corporate Tax private clarifications covering issuances up to May 2026 gives useful guidance on common staffing and workspace questions. The FTA published that summary in July 2026.

Adequate substance is one part of a wider assessment. Qualifying income, transfer pricing, relevant documentation and the other statutory conditions must also be considered. Meeting a staffing or office requirement alone does not establish that all income is eligible for the 0% rate.

Connect the resources to each activity

Article 8 of Cabinet Decision No. 100 of 2023 links substance to the level of each activity: core income-generating activities, assets, qualified full-time employees and operating expenditure. The relevant Free Zone or Designated Zone location requirements must be considered. Outsourcing can be permitted, subject to the applicable rules and adequate supervision.

For a practical review, write down the important decisions and functions that generate each revenue stream. Then identify who performs them, where they are performed and which records support that explanation. A general description such as ‘group support’ is less useful than a clear account of the work actually completed.

Three points clarified by the FTA

Related-party visa sponsorship does not automatically prevent an employee from counting. The clarification considers full-time work in a Free Zone under the company’s control and supervision, with the company bearing the economic cost and responsibility for the substance of the employment relationship.

Shared workspace may be sufficient where it supports the company’s actual core activities at the relevant scale. A passive or asset-based activity has no automatic exemption from the substance test. Its resources still need a case-specific assessment.

Turn the explanation into an evidence file

A hypothetical group may have staff sponsored by one entity while another free-zone company receives their services. Rather than relying only on the visa records, the review should follow the day-to-day arrangement: who directs the work, approves leave, evaluates performance, incurs the cost and keeps the work product? Differences between the written arrangement and actual practice should be resolved and documented.

The following working papers make the assessment easier to review. They are practical preparation steps, rather than a promise that the company qualifies.

  • Prepare an activity and revenue map supported by customer contracts and invoices.
  • List the people performing significant functions, their qualifications, location and responsibilities.
  • Keep employment or service arrangements, payroll evidence, cost allocations and relevant approvals.
  • Describe how the workspace and equipment support the actual work.
  • For outsourced functions, retain the agreement, deliverables and evidence of oversight.
  • Reconcile the explanation to the accounting records and investigate unexplained differences.

Check audit and continuing compliance

Where Corporate Tax rules require audited financial statements, the FTA summary confirms that an overseas auditor alone does not satisfy the requirement: the auditor must be registered with the UAE Ministry of Economy and practise in the UAE.

Keep the substance assessment under review when the business hires staff, changes offices, adds a revenue stream or outsources an important function. A short annual review is easier to support when the records have been maintained throughout the year. Dr. Ahmad Helwani can help assess the facts and identify the evidence needed for a properly supported free-zone Corporate Tax position.

Sources and further reading

Reviewed and expanded on 2 November 2026. Examples are illustrative. The treatment of a particular business depends on its facts and the rules applicable to the relevant period.