11 July 2026 · Free-Zone Substance
From ESR to Corporate-Tax Substance
Discontinuing ESR did not remove the need for substance. To keep the 0% corporate-tax rate, a Qualifying Free Zone Person must maintain adequate substance in the free zone — adequate assets, qualified employees and operating expenditure for its core income-generating activities, which can be outsourced within the zone under supervision. That test now sits inside the corporate-tax law and free-zone decisions, not ESR.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Same idea, different law
Substance moved from ESR into corporate tax.
- ESR relevant-activity tests no longer apply from 2023.
- QFZP substance is now a corporate-tax condition.
- Adequate assets, staff and expenditure in the free zone.
- Core income-generating activities must be in the UAE.
Evidence your substance
The rate depends on being able to prove it.
- Show qualified employees for the activity.
- Show operating expenditure in the free zone.
- Document any in-zone outsourcing and supervision.
- Align substance with your qualifying-income analysis.
Frequently Asked Questions
For free-zone companies protecting a 0% rate.
If ESR is gone, do I still need substance?
Yes. Free-zone companies must keep adequate substance to hold the 0% corporate-tax rate; the requirement moved from ESR into corporate tax.
What counts as adequate substance?
Adequate assets, qualified employees and operating expenditure for the core income-generating activities, carried out in the UAE.
Can I outsource to meet substance?
Core activities can be outsourced within the free zone with adequate supervision, provided the activity remains in the UAE.
Can Exiloz test my substance?
Yes. We assess whether your substance supports your qualifying income and the 0% rate.
Protect your free-zone 0%
Exiloz makes sure your free-zone substance stands up under the corporate-tax rules.