GUIDE ON SETTING UP AN ADGM SPECIAL PURPOSE VEHICLE COMPANY

This article was updated on June 13th, 2023

This article has been researched and written by Carolyn Cairns and the team at Creation Business Consultants and has not used AI in generating this article.

Many foreign investors and businesses entering the GCC markets are concerned about how to combine and manage underlying assets. Viable structures tend to be in demand that could meet the aim of consolidating assets and investments.
As a gateway to the expanding economies of the Middle East, North Africa, and South Asia, the Abu Dhabi Global Market (ADGM) is an international financial center located in the UAE’s capital.

The ADGM is a financial free zone with its own civil and commercial laws, as well as the Financial Services Regulatory Authority (FSRA), which regulates financial services.

Any corporate body or individual establishing a corporation in the ADGM freezone may have 100% foreign ownership and be subject to the same civil, commercial, and regulatory environment as the United Kingdom. The ADGM also comprises the ADGM Courts, the structure of which in practice uses common law, allowing registered corporations to rely on a well-established collection of precedents. Finally, this form of structure gives foreign investors and enterprises alike peace of mind.

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WHAT IS AN ADGM SPECIAL PURPOSE VEHICLE (SPV)?

By ring-fencing assets and liabilities, an ADGM SPV is formed to isolate financial and legal risk. SPVs can be established as subsidiaries, projects, or joint venture vehicles to ensure that only the assets involved with a transaction are exposed to the liabilities associated with that transaction.

The SPV is a private Limited Liability Company (LLC) formed under the legislation of the ADGM. It is intended for asset holding and investment reasons. The SPV can only function as a holding company and cannot conduct operational business, provide services, or hire employees.

WHAT CAN AN ADGM SPECIAL PURPOSE VEHICLE (SPV) DO?

An ADGM Holding firm is often a parent corporation that operates as a private limited company (Ltd). An ADGM can own additional businesses (subsidiaries), property, patents, trademarks, stocks, and other assets anywhere in the world.

The usage of an ADGM vehicle to buy Dubai properties is another key benefit for investors using the ADGM free zone ecosystem. Previously, the Dubai Land Department (DLD) restricted the types of companies that might own land in the designated areas.

Now companies incorporated in ADGM can own properties in designated areas of Dubai.

WHY SETUP AN ADGM SPECIAL PURPOSE COMPANY (SPV)?

ADGM drew on the best available structures around the world to create the Special Purpose Vehicle concept, which offers a variety of vehicles to meet narrow, specific, or transitory corporate objectives. ADGM Special Purpose Vehicle Company provides a low-cost regime with a firm commitment to speed and simplicity of process.

A flow of dividends and royalties from underlying investments and/or assets might benefit an SPV.

ADGM SPV CASE STUDIES IN PRACTICE

Below we have listed some of the key uses of an ADGM SPV such as:

Re-domiciliation

- Re-domiciliation and migration of holding corporations and SPVs from other jurisdictions. Migration from BVI to ADGM is a common example to streamline compliance and reduce risk.

Structuring

- Streamline group structures to reduce risk, lower costs and maximise control. Typical UAE structure is forming an ADGM SPV for the purpose of hold investments or holding shares in an UAE onshore LLC. This structure is preferred by foreign investors due to the governing English common law practice.

Securitisation

- Asset-backed securities are used to secure loans made by lenders.
- Based on the structure the holders will have the first right over assets purchased via the proceeds of the loan.

Financing Transactions
- Financing and off-balance-sheet transactions are examples of how it is utilised.
- Raise funding without increasing a Parent office’s or company’s debt.

Real Estate Investment
- Used to buy, purchase, and hold title to real estate in Dubai, UAE, and around the world.

Asset Transfer

- Established for the purpose of transferring assets and related agreements.

Risk Sharing

- Vehicles used for specific projects joint ventures, shielding JV partners from risks associated with the JV. Commonly a separate operational entity is used to conduct the actual project management.

Capital Raising

- Used to raise capital at advantageous rates using an SPV’s creditworthiness backed by its assets.

Holding Intellectual Property

- The vehicle can be used to isolate important intellectual property into a separate structure with low obligations, as well as to assist generate funds and enter into agreements with other third parties.
- The vehicle can also enter into licensing and IP agreements as needed, and the shareholders will have an entity into which royalties or licensing fees can be paid.

ADGM offers companies several benefits:

100 percent foreign ownership.
0 percent tax rate on income or profits (guaranteed for a period of 50 years).
No restrictions on repatriation of profits.
Exemption from the UAE Federal Civil and Commercial laws.
Access to regional wealth and or investment opportunities.
Wide network of double taxation treaties available to the UAE.
No exchange controls – free capital convertibility.
Transparent operating environment with high standard regulations.
Strict supervision and enforcement of Anti-Money Laundering (AML) laws.
Capital structuring flexibility.
Availability of a skilled labour force and highly trained professionals.

Points to highlight include:

To take advantage of the UAE Double Tax Treaty network, any ADGM registered firms can apply for a Tax Residency Certificate from the UAE Ministry of Finance. The entity must meet the criteria set by the Ministry of Finance.
The SPV must be able to demonstrate substance within the UAE.

ADGM & ECONOMIC SUBSTANCE REQUIREMENTS (ESR)

Like other jurisdictions and free zones within the UAE, the ADGM authority has specified the standards for Economic Substance requirements for ADGM SPVs. The authorised signatory of the ADGM entity must be a GCC resident, and the entity must also have assets in the UAE and/or the GCC. As a result, the ADGM Registrar must be satisfied that the applicant/licensee has met the ‘Nexus Requirement’.

The ADGM SPV regime is well-regulated, adaptable, and a low-cost vehicle. It offers a holding structure with several purposes, is based in the UAE (subject to meeting residency criteria) and has straightforward reporting obligations in a reputable jurisdiction.

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