Establishing holdings and structures in the UAE

A UAE parent company, coupled with a strategic asset ownership structure, can be the cornerstone of your business success. The UAE's allure lies in its unwavering stability, both economic and political, alongside enticing tax upsides, cutting-edge framework, and robust security measures.

This guide delves into the setup procedures, highlights the upsides of such a structure, analyzes different holding company choices, and explores tax considerations for holding firms in the United Arab Emirates.

The creation of holdings in the UAE: principal features

Parent entities, intricately constructed, stand out as premier organizational frameworks created to ring-fence valuable assets like shares, intellectual property, finances, real estate, and more within subsidiary entities safeguards ownership and optimizes their practical use across the business ecosystem.

A holding generally presents strategic orientation and manages the investment operations of its partnered firms. This could entail apportioning resources toward fortifying existing ventures, procuring new enterprises, financing innovative initiatives, or pursuing asset procurement.

Furthermore, a holding entity established in the UAE can exploit various methods to acquire additional capital, for instance, divesting equity stakes in its subsidiaries via strategies like IPOs or private equity transactions. Divesting subsidiaries shares allows the parent firm to unlock capital for strategic initiatives and expansion endeavors.

Functioning as centralized hubs, UAE holding companies wield tactical supervision over their subsidiary ventures. This stewardship encompasses both financial backing and operational guidance. To fulfill this role, they unify financial resources, ensuring optimal allocation, and implement improvements across subsidiary functions. Notably, these holding structures can be established throughout all emirates in the UAE.

Because of features like asset consolidation and settlement flexibility, the establishment of holdings inside the Emirates is opportune for optimizing operating procedures. These holding corporations and similar structures should be formed in accordance with local legislation and international standards to avoid juridical issues.

Selecting the UAE to create a holding company

The Emirates is well-known for its attractive business climate and promising investment prospects. It provides advantageous tax tariffs and allows unrestricted movement of capital. Situated in a strategic location, it provides easy access to markets in Asia, Europe, the Middle East, and Africa. The nation's varied economy, robust infrastructure, legal safeguards, and supportive services all contribute to fostering entrepreneurial growth.

Investors in the UAE can conduct business with confidence, thanks to the country's well-ordered financial system that fosters stability.

Advantages of holding entity in the UAE

Establishing a holding company in Dubai or other emirates provides numerous perks:

Wealth preservation
The UAE's holding structure empowers businesses to disperse assets across a network of subsidiaries. This strategic compartmentalization shields the entire group from setbacks within a single entity, minimizing overall risk. Furthermore, by fostering collaboration between divisions, the holding company can streamline operations and optimize costs.
Financial flexibility
A holding company in the UAE can use its corporate framework to obtain funding from investors or monetary institutions, using its assets as collateral or guarantees. This diversifies funding sources, reducing vulnerability to financial liabilities linked with relying on a single funding stream.
Asset organization through holding structures
A holding framework facilitates the consolidation of various business assets into a unified structure, simplifying oversight and direction. This consolidation enhances effectiveness in terms of time and expense by centralizing resources and administrative protocols. In addition, a holding can enforce uniform processes across its affiliated entities to ensure consistent operations.
Tax optimization
The UAE's unrestricted zones offer a haven for holding corporations, shielding subsidiary profits from taxation. These zones further enhance financial appeal by eliminating revenue taxes and currency restrictions. Additionally, to minimize the tax impact on global ventures, the UAE leverages its network of international tax agreements to prevent double taxation for holding corporations.
Opportunities for expanding into new markets
Developing holding infrastructures and corresponding frameworks in the Emirates presents possibilities for reaching novel markets. Positioned as a global trade hub, the Emirates benefits from strategic geographical location, advanced infrastructure, along with resilient economic stability. Unfettered trade deals forged by the UAE government unlock global markets for businesses. This fertile ground creates a springboard for companies to flourish and magnify their reach.
Increased privacy
A holding structure enhances confidentiality for the equity holders and ownership organization within the business. UAE regulatory authorities do not mandate complete disclosure regarding subsidiary engagements, provided that the holding company complies with all juridical obligations conscientiously.

Eligibility for the UAE resident visa

Acquiring property through holding companies offers an opportunity to obtain residency in the UAE. This may include residency visas valid for up to 10 years for investors, as well as the highly sought-after Golden Visa. Eligible properties must satisfy specific criteria to qualify for UAE residency through a holding company:

  • Investment in properties valued at AED 1 million (about 272,257 USD) or higher is typically required.
  • Appropriate property types encompass residential units (apartments, villas) and commercial spaces (offices, warehouses).
  • In order to be eligible for a residence permit, the property must be situated in one of the designated emirates or zones.

Permissible functions for holdings

UAE holding firms can engage in a wide range of activities:

  • Possessing subsidiaries stocks and offering financial backing;
  • Administering and supervising real estate holdings, administering intellectual property assets, and authorizing permissions for affiliated organizations;
  • Delivering managerial and advisory solutions to subsidiary firms;
  • Acquiring financial instruments like bonds, stocks, and various securities;
  • Extending credit to branch locations and exploring diverse financial offerings.

Types of holding companies in the UAE

Federation holdings guarantee streamlined supervision and protection of corporate assets, providing diverse, customized frameworks to fulfill precise business requirements and goals.

Various holding forms

Onshore

Free economic zone (FEZ)

Offshore

Opening a holding firm in the UAE enables you to handle administrative responsibilities for both domestic and international enterprises, while remaining detached from operational affairs.

Holding firms located in the Emirates should adhere to regulations established by the Department of Economic Development in each emirate. The UAE Federal Commercial Companies Law No. 2 of 2015 outlines the guidelines governing their operations.

An alternative option is investing in FEZ, which boasts more than 50 locations nationwide. These zones offer businesses with enhanced flexibility and appealing inducements, such as advantageous tax treatment, absence of exchange rate constraints, and unrestricted profit repatriation capabilities.

Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC) stand out as favored free regions due to their adoption of the common law system, enhancing their attractiveness.

Various entity types, each with distinct features and advantages, exist for establishing a holding corporation within the UAE free areas.

  1. Free zone entity: 2 to 50 stakeholders, comprising both domestic and global participants.
  2. Free domain establishment: a sole proprietorship granting the proprietor complete control and direct managerial authority.

Creating an entity in select UAE domains, such as Ras Al Khaimah and Jebel Ali Free Zone, grants advantages like revenue tax exemptions, low corporate taxes, and full international ownership rights.

Transactions with Emirate nationals are restricted for offshore holding entities.

Registering holding firms in the UAE mainland proves more complex and costly than in FEZ. This intricacy stems from diverse factors:

  1. Establishing a mainland UAE holding necessitates a higher initial capital investment compared to FEZ.
  2. The registration process for a mainland UAE holding entails a broader array of procedural protocols and requisites, potentially leading to delays.
  3. Establishing a holding organization on the UAE mainland entails increased paperwork and higher setup costs compared to a FEZ.

An outline of the UAE corporate structures and key aspects of holding company management.

Various corporate organizations exist for the UAE onshore holding entities:

  • In the UAE, contributors favor Limited Liability Companies due to their flexibility and lack of compulsory minimum capital for registration. Such entities safeguard founders' personal assets and allow versatile ownership structures.
  • Public Joint Stock Companies may elect to list on either the Dubai Financial Market or the Abu Dhabi Stock Exchange, each imposing unique minimum capital prerequisites determined by the respective emirate. These firms can have numerous shareholders and are authorized to sell shares to investors. Adherence with rigorous regulatory mandates, notably regarding monetary disclosure, is mandatory.
  • A Private Joint Stock Company, characterized by a capped shareholder count and restrictions on public stock trading, differs from publicly traded firms by its absence from stock exchanges. Minimum capital criteria may vary by emirate.

Profits from subsidiaries can be distributed to the parent entity as dividends without being taxed. While the holding firm is not liable for its subsidiaries' debts and obligations, it bears the responsibility of maintaining their ongoing financial stability.

Establishing a holding firm in the UAE: key factors for consideration

Establishing a holding corporation in the UAE entails adhering to a structured series of steps and protocols, mirroring the formation process of any other corporate entity:

  • Prior to moving forward, it's important to distinctly establish goals and objectives. These may encompass minimizing tax responsibilities through advantageous tax frameworks, safeguarding assets from potential legal challenges, broadening corporate operations globally while diversifying investments across various industries for risk reduction.
  • Forming a UAE holding company involves pivotal decisions regarding setup and location selection. Various options, encompassing free zone, offshore, and onshore entities, offer distinct advantages. While free zones such as DIFC or ADGM offer advantageous facilities and strategic positioning for holding businesses, mainland operations necessitate a DED commercial license.
  • Another vital aspect involves drafting the Memorandum and Articles of Association for the holding company. The Memorandum sets forth its objectives and structure for stakeholder cooperation, while the Articles delineate roles, entitlements, and obligations. Papers demand thorough preparation and submission, along with registration documentation and managerial qualifications, for review by the regulatory body.
  • To create a UAE holding, submit an application to your selected authority, whether on the mainland or in a free zone, and pay the necessary fees. Following this, the regulator will conduct a thorough evaluation and may ask for additional documentation.
  • Upon approval, a Certificate of Establishment will confirm the legitimate status of your enterprise. Establishing a holding company in the UAE does not require specific financial criteria, and typically, this procedure spans several weeks.

Establishing a banking account for a holding company located in the UAE

The bank account of a holding company is pivotal for consolidating financial transactions from its subsidiaries, executing investment endeavors, overseeing asset portfolios, and beyond.

In the UAE, initiating a business bank account entails a rigorous and formal procedure that requires:

Prerequisites for documentation
In the UAE, banks typically demand a substantial amount of paperwork to initiate an account. Furnishing extensive information regarding the company, including its directors, shareholders, and asset portfolio, typically proves indispensable.
Authentication
Emirates banks often require authentication of documents through apostille or legalization, particularly when issuing outside the nation. This can take time and incur additional costs.
Verification procedure
UAE banks conduct a thorough assessment process not only for the client but also for their income sources. This could involve a thorough review of the financial backgrounds of the firm and its proprietors.
Minimum balance threshold
In the UAE, meeting account minimum balance requirements often demands a hefty initial investment.
IMPORTANT:
When businesses establish bank accounts in the UAE, they should ensure the presence of mandatory signatories to enhance security and verify clients.

The UAE holding firm must assess multiple factors in selecting a bank, such as the bank's industry reputation, breadth of offered solutions, transaction charges, account upkeep expenses, currency exchange rates, and online banking accessibility.

Here are a few UAE banks offering services for holding companies:

  • First Abu Dhabi Bank.
  • Abu Dhabi Commercial Bank.
  • Dubai Islamic Bank.
  • Standard Chartered UAE.

Every entity offers distinct advantages, specialized domains, and service terms, making the decision of a specific bank subject to the specifications of the holding agreement.

Initiating a holding company within UAE's unrestricted zones

Located at the heart of the Emirates' capital city, ADGM takes the spotlight as a leading center for finance. It has gained worldwide acknowledgment for its proficient commercial solutions and resilient, forward-looking legitimate framework since its inception in 2015. To cultivate innovation, a dynamic business ecosystem, and heightened economic variety, ADGM consistently enhances the business landscape.

Enterprises here reap multiple benefits, comprising:

  1. Favorable taxation system.
  2. The local judicial system follows British common law, affirming its status as a common law jurisdiction. ADGM oversees each arbitration according to its specific arbitration regulations.
  3. A diverse legal and financial services terrain offering top-notch assistance.
  4. Foreign talent and staff are embraced without limitations.
  5. No limits on capital repatriation.
  6. Tax-free for 50 years on revenue, capital, and assets.
  7. Acting as the nucleus of the global economy.

Founding holding entities within ADGM is recommended for both passive and operational purposes, utilizing special purpose vehicles (SPVs) and limited liability companies (LLCs) respectively.

SPV

LTD

SPV structures come about as a result of stakeholders' requests for particular aims, like facilitating real estate dealings. Hiring personnel is prohibited because of the holding business's passive character. In AFDM, passive holding entities cannot access visas and work spaces.

The applicant has to convince the regulator overseeing company enrollments in the ADGM that the SPV will establish a substantial connection either with it, the UAE, or the Gulf Cooperation Council states (GCC). It's imperative that the registration body is fully notified that:

  • An individual or corporate entity located in the Emirates or the GCC will control the SPV;
  • The SPV possesses or plans to acquire assets located in the GCC or UAE.
  • The SPV's aim is to issue securities endorsed by the Financial Services Regulatory Authority for listing on a domestic exchange.

Registration of SPV entities in ADGM typically takes around 10 working days following the submission of a comprehensive application.

This category offers broader opportunities in managing, operating, and possessing resources. An LTD typically demands a higher capital outlay for registration compared to an SPV.

An LTD is not bound by any location requirements for its assets or shareholders. It must report its office location to the ADGM and has permission to hire staff, limited by the capacity of its office space.

The deadline for registering ADGM/Abu Dhabi Ltd is around 10 business days after submitting a fully completed application.

Selecting between an SPV and an LTD will depend on your holding company's particular goals, the extent of influence and exposure to risk implicated, and the accounting and tax obligations.

DIFC's appealing tax laws, simplified legal framework, and global market access establish it as a top choice for holding firms. It operates as a central nexus for business., enabling seamless asset management on both national and global scales.

Setting up a holding company in the DIFC presents numerous perks, including:

  • Recruiting foreign workers and repatriating funds face no restrictions, allowing for full foreign ownership.
  • Under its autonomous regulators and judiciary, it is governed by common law.
  • Creating a holding company in DIFC grants access to diverse financial solutions and a cadre of seasoned experts, comprising juridical and investment advisors.
  • Exempt from taxes on income, capital, and profits for 50 years, excluding a 5% VAT.

Regulatory oversight of financial services and associated operations falls under the jurisdiction of the Dubai Financial Services Authority, an autonomous entity within the DIFC. Licensees have the authority to establish holding entities, like DIFC Co. Ltd., within their operational domain.

If incorporated as a licensed holding entity, the corporation holds the prerogative to maintain equity or ownership interests. DIFC Co. Ltd must uphold office premises within DIFC and can choose to grant UAE residency visas to its employees.

Establishing DIFC Co. Ltd. requires submitting duly authenticated company documents to the Ministry of Foreign Affairs and the UAE Embassy in the founder's home country, followed by legalization by the UAE Ministry of Foreign Affairs and International Cooperation. Typically, the formation process for DIFC Co. Ltd. takes around 6 to 8 weeks from the date of application submission.

A thorough understanding of local regulations and legal mandates is imperative when establishing holdings and structures in the Emirates. Thus, seeking guidance from seasoned legal professionals with pertinent expertise becomes paramount. YB Case experts offer a spectrum of key services, including:

  1. Legal counsel entails analyzing your business plan and objectives, alongside evaluating potential legal responsibilities and devising structuring strategies tailored to the UAE.
  2. Full support for establishing a UAE holding company, involving regulatory approval.
  3. Facilitating licensing registration and account opening to efficiently conduct business activities.
  4. Legal assistance for transactions will be offered, encompassing the drafting of requisite agreements and documentation for asset transfers.

Formation of a UAE holding: taxation concerns

Understanding taxation implications and corporate management is vital when establishing a parent company in the UAE.

A 9% corporate income levy took effect on June 1, 2023. Firms must settle this tax upon surpassing a designated threshold of 375,000 AED, or roughly 102,100 USD, in profits. Holding entities situated in unconstrained zones are eligible for a CIT rate of 0% provided they meet the criteria as a free zone individual.

A company is eligible for ‘qualified free zone person’ status upon fulfilling specific criteria:

  • Confirmation of economic presence in FEZ.
  • Accordance with UAE transfer pricing rules.
  • Nonqualified income is within the minimum level (5% of total income or 5 million AED (1,361,285 USD), whichever is lower).

VAT came into effect on January 1, 2018. The standard VAT rate is 5%, with particular services being either zero-rated or exempt from VAT under specific circumstances.

Becoming an attractive option for holding companies refining tax strategies, the UAE has abolished withholding taxes on profits, interest, and royalties.

For a parent company situated in the UAE, the absence of withholding tax can offer multiple advantages:

Profit repatriation
The holding entity can repatriate profits from its overseas subsidiaries without facing withholding taxes in the UAE. This not only maximizes the return on the company's net investment but also promotes a smooth cash flow.
Cutbacks on expenses
Not having taxes on dividends, interest, or royalties enables holding firms to trim costs and retain greater earnings, endowing them with a competitive edge, particularly when juxtaposed with regions subject to heightened income tax rates.
Flexibility in global transactions
Holding corporations are able to undertake foreign transactions without having to worry about withholding taxes because of this tax benefit. This adaptability encourages global contribution and commercial ventures, augmenting the advancement and influence of the parent entity.
Note:
Tax obligations for income generated beyond UAE borders adheres to legal regulations of relevant jurisdictions.

UAE holding firms can utilize tax treaties for efficient tax planning, alleviating dual taxation and mitigating international withholding taxes.

Tax on the transfer of stocks or estate in the UAE could apply, with varying rates and regulations based on the nature and whereabouts of the holdings.

Like any other kind of commercial enterprise, a holding firm must keep accounting records and present financial statements. This is necessary to safeguard investor interests, provide financial activity transparency, and abide with tax regulations.

Local legislation, such as the Federal Law on Accounting and Auditing Practices of 1985, oversee financial and accounting operations in the UAE. Enterprises engaged in global trade or possess foreign assets may additionally need to comply with the Intercontinental Financial Reporting Standards. Accurate tax and monetary record filing in the Emirates may be ensured by seeking the advice of qualified professionals in accounting.

Factors affecting enrollment costs for a holding enterprise in the UAE

The expenses associated with registering parent enterprises differ according to specific factors, and the parent company's framework is crucial. All categories have unique characteristics and rules that affect total costs.

Location greatly influences value. For example, operating from DIFC offers numerous benefits for holding entities, including international possibilities, tax benefits, regulatory assurances, and strategic positioning. Though, these upsides come with added expenses such as licensing fees, registration costs, and workspace.

Another key consideration is the extent of the holding company's business operations. Larger firms might encounter elevated expenses from heightened transaction fees and licensing charges. Furthermore, leasing office spaces could notably affect the total cost of initiating a holding entity in the UAE.

It is advisable to work with experienced professionals facilitating Emirates business enrollment for optimal cost savings.

Conclusion

The rise of holdings as the favored corporate model for world expansion is remarkable. Founding holding corporations with interconnected firms in the UAE yields substantial benefits, a comprehensive, forward-looking approach offering diverse advantages to business owners seeking international expansion and enhanced operational efficacy.

Holding entities can function independently or integrate into intricate systems where a primary holding company oversees subholdings tailored to distinct geographic regions or sectors, each managing specific assets.

YB Case business consultants can extend consulting assistance to our customers and help with the establishment of a holding company in the UAE. Our specialists have in-depth expertise of national legislation, business processes; it enables us to deliver thorough and effective services to our clients.

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