In addition to the more familiar forms of legal entities, ADGM also offers a category of corporate vehicle called a Special Purpose Vehicle (“SPV”). A range of business types, uses and industry sectors use SPVs in their group structure as the purpose of a SPV must fall outside the core financial services offering of ADGM.
This article is intended to highlight the features of a SPV and some of the factors you should consider when deciding whether to incorporate one in ADGM. Deciding where to incorporate your company depends on your situation and must be discussed with your lawyer.
What is an ADGM SPV?
SPVs are usually private companies which are established to ring-fence assets and liabilities: for example, an SPV may be established for a particular project or joint venture. Being incorporated in ADGM, a SPV is a free zone company but it cannot provide financial services to third parties. Rather, a SPV may only perform a limited range of “Exempt activities” including acquiring, holding or disposing of an asset; securitising assets; and issuing investments.
What forms of SPV does ADGM offer?
SPVs take one of two forms: private company limited by shares (“LTD”) or a restricted scope company (“RSC”). An LTD SPV is a standard private limited company and is used as a passive holding company. A RSC is unique to ADGM and offers limited information disclosure on the public register made available by the ADGM Registration Authority. As such, RSCs must be a:
• subsidiary of a group which files consolidated accounts which are publicly available; • subsidiary of a company formed by Emiri decree; or • Single Family Office (i.e. a private company which manages investments for a single family)
This article focuses on the LTD SPV structure, given its broader applicability.
What are the advantages of incorporating an ADGM SPV?
• Flexible ownership structure: The ADGM SPV regime requires no minimum share capital, no maximum number of shares or shareholders and multiple classes of shares are permitted. There is no requirement to hold annual shareholder meetings.
• No foreign ownership restrictions: There are no restrictions on the nationality of share ownership. In addition, if an ADGM SPV is wholly-owned by GCC nationals, it will be considered a GCC national for the purposes of onshore UAE foreign ownership restrictions (where minimum levels of UAE national ownership are prescribed at law). Companies incorporated in other traditional offshore jurisdictions (e.g. BVI or Cayman) are considered foreign nationals for the purposes of these foreign ownership restrictions.
• No requirement to take office space: ADGM SPVs only need a registered office address. This address may be that of an agent or corporate services provider, a holding company or a virtual office so set-up costs are reduced considerably.
• Tax: ADGM is generally a tax-free jurisdiction (noting that VAT came into effect on 1 January 2018). There are no corporation, transfer, capital gains, inheritance, withholding taxes or restrictions on the repatriation of profits from ADGM.
• Benefits from UAE tax treaties: ADGM registered companies are eligible to apply for a Tax Residency Certificate from the UAE Ministry of Finance. If it meets the criteria, an ADGM SPV will then benefit from the UAE’s Double Tax Treaty network (over 70 treaties currently in force with more in progress).
• Common law legal system: ADGM is an independent, English language jurisdiction with its own civil and commercial laws and court system. It is a common law jurisdiction which is based on English law.
• Speed – shelf companies: ADGM permits the establishment of shelf SPVs. This allows a law firm or corporate services provider to incorporate an SPV and have it waiting for a transaction for itself or its clients. The SPV can be transferred to a client relatively quickly.
• Speed – online incorporation: The application and incorporation process is entirely digital and achieved using an online portal. If all your incorporation documentation is in order, you can expect that your new company will be incorporated within a few days. The ADGM Registration Authority aims to provide a simple and efficient incorporation and registration process.
• Documentation: Generally speaking, there is no requirement to have corporate documents attested and legalised. By contrast, elsewhere in the UAE, these processes are often lengthy and expensive.
Are there any disadvantages to incorporating an ADGM SPV?
• Not eligible for Dual Licensing Regime: ADGM and the Abu Dhabi Department of Economic Development (“ADED”) have entered into an arrangement which allows an ADGM-licensed entity to conduct business activities outside ADGM without the need to maintain additional premises in mainland Abu Dhabi. However, ADGM SPVs do not qualify for this Dual Licensing Regime so their activities are restricted to the physical area of the ADGM free zone.
• Real estate: if you choose to lease office space (noting that this is not a requirement for ADGM SPVs), the attractive premises and facilities in ADGM come with a corresponding higher cost than those found elsewhere in the UAE, including its other free zones.
• Limited track record: ADGM is a relatively new jurisdiction so its rules and regulations have not been tested to the same extent as other traditional offshore jurisdictions such as BVI or Cayman.
• Legal opinions: Given the above, some law firms may have difficulty getting sufficient comfort to be able to provide “clean” legal opinions (i.e. with limited qualifications and carve-outs) which may be requested by third parties with whom you interact (e.g. lenders).
I already have a company incorporated elsewhere. Can I migrate it into ADGM?
Possibly. You will need to confirm with your lawyer that your current jurisdiction allows for outbound migration. BVI, Cayman, Bermuda, Jersey, Guernsey and Delaware and other jurisdictions permit the “continuance” of a company into another jurisdiction.
Why would I migrate my company into ADGM?
In addition to the advantages outlined earlier, many businesses in this region seek comfort in transferring their assets closer to home. Migrating holding company structures into ADGM offers legal ownership in a common law jurisdiction with robust regulations and benefitting from local professional advisers.
Want to know more?
Support Legal has incorporated, and acts as the registered agent for, approximately 25% of the ADGM SPVs currently registered. We can help you with establishing your own ADGM SPV. Please get in touch via our Contact Us page.