Creation of a holding company in the UAE
Establishing a holding company in the United Arab Emirates represents a strategic maneuver for many business owners and corporations aiming to enlarge their presence on the intercontinental stage and enhance their management structure. The allure of the Emirates to business circles is attributed to favorable taxation, a dynamically evolving economy, and high security standards. Thus, familiarity with the mechanisms of creating holdings in the UAE is paramount for achieving success in international scaling and diversification of business activities.
The aim of this publication is to provide a clear and informative overview of the process of registering a holding company in the Emirates. The article will illuminate the key benefits and varieties of holding structures offered in the UAE, the stages of their registration, tax nuances, as well as the foundational principles of efficiency in managing holding structures.
General overview of holdings and their features
A holding structure represents a form of business organization wherein one enterprise (the holding) supervises other companies, pointed out to as subsidiaries or affiliates. The key characteristics of holding corporations entail centralized administration, concentration of asset control, and more efficient resource allocation.
The primary upsides of incorporating a holding establishment lie in its potential to diversify investment portfolios, alleviate risks through asset distribution, and optimize the utilization of tax incentives and incentives. In the context of the United Arab Emirates, forming a holding entity can offer several benefits due to the favorable commercial climate in the country.
Upsides of creating a holding company in the UAE
Forms of holding structures in the UAE
There are many types of holdings available in the United Arab Emirates, each with exclusive features and privileges.
Holdings in free economic zones (FEZ)
Holding companies incorporated in the Free Economic Zones of the UAE stand as one of the most coveted business structures owing to a plethora of privileges available to multinational contributors and entrepreneurs.
- Tax preferencesThe key advantage for holdings in FEZs is tax incentives, including exemption from taxes on corporate profits and individual income for a specified period.
- Full ownership for foreign investors In a special zone (SEZ), foreign investors can fully own their businesses without the condition of a domestic partner.
- Freedom of movement of funds Holdings in FEZs have the possibility to move their capital without restrictions both within and outside the country.
- Free Zone Corporation (FZC): up to 50 founders are allowed, regardless of their nationality.
- Free Zone Establishment (FZE): is a sole proprietorship enterprise where one person or entity wholly possesses and controls the enterprise.
The procedure for registering holdings in Arab SEZs is usually simpler and faster than on the mainland, and requires minimal start-up costs.
Holding companies on the mainland
In the United Arab Emirates, holdings situated on the mainland pave the way for profound collaboration with both national and world markets, offering access to a broader array of services and infrastructural opportunities.
- Direct access to the Emirates domestic market and regional trading platforms, enhancing possibilities for business expansion to a wider geography.
- The ability to use a diverse infrastructure and a wide range of services, including monetary, legitimate and consulting services, which contributes to the further development of the enterprise.
- Limited Liability Company (LLC): This form of legal entity is one of the most preferred for doing business in the mainland UAE and is available to both local and international investors with confined responsibility under obligations.
- Public Joint Stock Company (PJSC): A PJSC is a type of publicly traded company that has a large number of shareholders, requiring public disclosure of financial information.
- Private Joint Stock Company (PrJSC): PrJSC, unlike PJSC, is limited to a certain quantity of shareholders and is not demanded to list its shares on an exchange.
The registration process for holding companies in the mainland of the UAE may prove to be more intricate and cost-intensive compared to registration in free zones, entailing higher minimum capital requirements and the necessity of providing an extensive documentation package.
Offshore companies in the UAE
Offshore enterprises offer another profitable choice for businessmen and depositors seeking optimal conditions for managing their business.
- Tax benefits UAE offshore domains often grant generous tax perks, comprising no corporate or personal revenue taxes, as well as tax exemptions on profits and dividends.
- ConfidentialityOffshore zones typically provide a high level of privacy and data protection, making them attractive to those who value the privacy of their business and finances.
- Flexibility Offshore companies have great flexibility in administering and structuring their business, which allows them to adapt the company structure to individual business goals and strategies.
The procedure for enrolling offshore companies, as a rule, is simplified and speedy, as well as low initial costs.
Each type of holding structure in the Emirates has its own peculiar characteristics and upsides. The choice of a specific type should be based on personal requirements, strategic planning and business goals. It is crucial to carefully analyze and evaluate all the details of each structure before making a final decision.
Detailed guide to registering a holding company in the UAE
Creating a holding structure entails a multifaceted procedure, involving meticulous planning and navigating through various legal and administrative stages. Let's delve into the detailed steps for initiating a holding in the United Arab Emirates:
Step 1. Determination of jurisdiction and holding format
Selecting the appropriate jurisdiction and format for the holding company constitutes the initial and pivotal stage in the process of establishing a holding in the Emirates. At this juncture, several key considerations must be taken into account before reaching a final decision.
Step 2. Finalizing the essential paperwork
At this stage, it is necessary to collect and prepare a package of documentation for the official establishment of a holding in the UAE. This package includes the following documentation:
Depending on the chosen jurisdiction and the type of holding, other documentation may be required, such as a business plan, bank statements, recommendation letters, etc. It is essential to carefully review the jurisdiction's requirements and prepare the necessary documents accordingly.
After preparing all the required documents, they must be signed and, if necessary, certified by an authorized person. This will ensure their legal validity and acceptability for the registration of the holding in the judicature of the UAE.
Step 3. Registration process in the selected jurisdiction
Certified copies of all necessary documents should be submitted to the registration body responsible for company registration in the chosen jurisdiction. Upon submission of the papers, the registration authority conducts a thorough examination to ensure adherence with jurisdictional stipulations. Upon successful verification, the company is granted a certificate to operate.
To successfully register a holding company in the UAE, a registration fee must be paid, the amount of which is determined in accordance with the rules of the determined jurisdiction. The fee may differ due to the type of business, its domain, and other conditions.
Obtaining a registration certificate, which serves as confirmation of the company's legitimate status in the chosen jurisdiction, becomes possible after payment of the specified fees and verification of the submitted documents.
Establishing a bank account for holding enterprises in the Emirates
The opening of a bank account for a holding company in the UAE is imperative for conducting financial transactions, fulfilling tax obligations, and managing finances. This procedure necessitates meticulous preparation and adherence to all regulations set forth by the banking institution. When selecting a bank, it is essential to consider its terms and requirements while ensuring full conformance with all legislative norms and rules governing banking operations.
Selecting a bank and specifications for opening an account
When selecting a bank to establish an account for a holding company in the Emirates, it is essential to consider the bank's reputation, services, fees, availability of online banking, as well as requirements for minimum balance and other conditions. In the UAE, numerous banks operate, encompassing both local and transnational institutions.
Papers demanded to open an account
To create a corporate account in UAE banks, you will need to submit a scope of documents relating to the holding company, comprising:
- Certificate of Incorporation of the holding.
- The company's statutory documents (Memorandum and bylaws).
- Passports of directors and persons authorized to sign.
- Confirmation of the company's licit address (a lease contract for office space).
- Description of the business model/plan.
The account opening procedure commences with the preparation and submission of all aforementioned papers to the chosen bank. The process involves completing an account opening form and submitting the complete document package.
Subsequently, the bank conducts a verification of the submitted information and documents to ensure conformance with internal stipulations and regulatory protocols.
Upon successful verification, the financial institution opens a corporate account for the holding company in the Emirates, providing the necessary account details and instructions for its usage.
Currency control in the Emirates
The UAE is renowned for its liberal economic policies, including relatively unrestricted currency controls. This fosters a favorable environment for transnational commerce and investment. In the UAE, there are no restrictions on foreign currency exchange or capital movement. This enables holding enterprises to seamlessly transfer funds between their subsidiaries and headquarters, as well as to invest in international estate.
Taxes for holding structures in the Emirates
The peculiarities of the tax framework for holdings in the Emirates emerge as a pivotal factor for contributors and business owners considering the UAE as a platform for their commercial ventures. The unique tax and legal regulations in the Emirates craft attractive opportunities for establishing and operating holdings.
Territorial principle of taxes
In the UAE, the principle of territorial taxation applies, which entails taxes only on revenue earned within the country. This means that for holdings, taxation is applied solely to income derived from the activities of their subsidiaries and affiliated companies on the UAE territory.
Double taxation agreements
The arrangements on the avoidance of double taxation, concluded by the UAE with over 115 countries as of 2024, contribute to minimizing the tax burden on holdings, thereby enhancing financial efficiency and expanding global connections. These international agreements alleviate the tax burden for holdings involving in business beyond the UAE, offering tax incentives.
Tax rates
Since June 2023, a business income tax at a rate of 9% has been introduced for companies with annual revenues exceeding 375,000 dirhams (approximately 102,000 US dollars). This underscores the significance of careful planning for holdings with high incomes to minimize tax liabilities.
In 2018, a 5% VAT was introduced in the UAE. Holding companies may be liable to pay VAT when conducting certain types of payments, such as offering services and selling assets. However, some categories of transactions may be exempt from VAT or subject to special accounting rules.
Benefits and exemptions
In the economic unconstrained domains of the UAE, numerous tax preferences and exemptions are provided for companies, encompassing holdings. For instance, enterprises may be exempted from corporate tax for up to 15 years, avoid property and value-added tax, and have the right to full foreign ownership.
Specifically, the Dubai International Financial Center provides the potential for complete exemption from corporate tax for up to 50 years, the right to 100% international ownership without the requirement of a local sponsor, as well as exemption from import and export duties.
Declaration obligations
Under UAE legislation, holding enterprises are obligated to declare monetary transactions and incomes, encompassing the provision of annual reports on revenues and taxes paid. Given the complex tax legislation in the UAE and the diversity of available tax incentives, it is fundamental to meticulously examine the tax obligations and possibilities for benefits for a specific holding during its enrollment and operation in the country.
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Holding activity and governance
The proper governance framework, effective accounting and reporting practices with asset management strategy development, play a pivotal role in the success of a holding company in the UAE. It is also essential to rigorously stick to legislation and corporate standards to guarantee long-term sustainability and business advancement.
Holding operational structure in the UAE
A holding company in the Emirates may feature a complex governance structure, encompassing a board of directors or a board of managers, a chief executive officer (CEO), as well as various committees (such as an audit committee, nomination and remuneration committee, etc.). The board of executives typically sets overarching strategic goals and directions for the holding, while the CEO is liable for the day-to-day administration of business procedures and the execution of approved strategies.
The role of heads and controlling institutions
The executives of the holding are fully accountable for making key significant determinations, overseeing the monetary health of the holding company, and confirming accordance with legislation and corporate standards. Governance bodies, such as the board of directors, play a pivotal role in overseeing the performance of the holding in the UAE, offering guidance and counsel on strategic matters.
Maintaining records and reporting
The holding is obligated to maintain accounting records and prepare financial statements in accordance with legislative requirements and financial reporting standards. This includes recording income and expenses, preparing balance sheets, profit and loss statements, as well as other monetary reports. Automation and digitization of accounting, asset management, and corporate reporting enhance efficiency and diminish the risk of errors. The application of blockchain technology can improve the transparency of monetary activities and transactions inside the holding.
Estate management strategies within a holding structure
Asset management within a holding structure may encompass various strategies, such as investment diversification, risk identification, portfolio optimization, and so forth. Each subsidiary in the holding may have its own asset management strategies, but overall, the key strategy of the holding should be directed towards maximizing shareholder value and affirming sustainable growth.
Risk management when registering a holding company in the UAE
Risk assessment is a critically important component of managing holding companies, especially in a dynamic and multifaceted jurisdiction like the UAE. This procedure entails the analysis, assessment, and implementation of measures to minimize potential risks that may impact the financial health, reputation, and operational activities. A comprehensive examination of this process guarantees the resilience and long-term growth of the holding.
Risk identification
The first step in risk assessment is to identify all potential threats that could impact the holding. Among them, it is worth highlighting the following:
- Financial risks: market volatility, currency fluctuations, credit risks and liquidity.
- Operational risks: disruptions in production processes, technological failures, supply chain problems and human factors.
- Legal and regulatory risks: changes in legislation, violations of intellectual property rights, lawsuits and fines.
- Country and political risks: political instability, international conflicts, sanctions and expropriation.
- Reputational risks: negative public perception of the company, scandals and negative reviews.
Various methods are used to identify risks, including data analysis, expert assessments, scenario planning and SWOT analysis.
Risk assessment
After identifying risks, the next step is their assessment. This phase helps determine the chance of happening of each risk and its potential influence on the holding in the Emirates. Risks are classified based on the severity, enabling the prioritization of efforts to minimize them. Risk assessment often involves quantification, such as through financial analysis, and qualitative assessment based on experience and intuition.
Risk Mitigation Strategies
When the dangers are assessed, strategies are developed to manage them. There are several basic approaches:
- Peril avoidance. Making decisions aimed at completely eliminating risk, for example, refusing to invest in high-risk projects.
- Minimizing risk. Implementation of measures aimed at reducing the likelihood of risk occurrence or its consequences, such as improving safety and introducing technological innovations.
- Transfer of risk. The use of insurance or hedging to transfer financial risk to another party.
- Taking risks. In some cases, risks are accepted knowingly if the potential perks outweigh the risks. In such cases, it is important to have an action plan in case the risk materializes.
Monitoring and reporting
Continuous monitoring and regular risk reporting are critically important for effective risk management. This entails tracking changes in the external ambiance and internal performance of the holding, which may impact risks. Regular reports are submitted to senior executives and the board of directors to guarantee transparency and the possibility to timely respond to potential threats.
Risk management in holding companies in the UAE requires a comprehensive and systematic approach, taking into account the region's unique operational, legal, and market conditions. Effective risk management not only protects the company from probable threats but also fosters sustainable growth and business development.
YB Case is pleased to offer its services and expert assistance in establishing a holding in the UAE. With extensive experience and deep expertise in juridical consultancy and business establishment in the UAE, our company guarantees our customers a top degree of qualification and reliable support at all stages of the holding structure registration process.
