WHAT IS AN ADGM SPECIAL PURPOSE VEHICLE (SPV)?
An ADGM SPV is created to isolate financial and legal risk by ring-fencing assets and liabilities. SPVs can be formed as subsidiaries, projects, or joint venture vehicles to ensure that only those assets related to a transaction are exposed to the liabilities associated with that transaction.
The SPV is a private company limited by shares and is incorporated under the laws of the ADGM. It designed to hold assets and for investment purposes. The SPV can only act as a passive holding company and cannot conduct operational business nor provide services or hire staff.
WHAT CAN AN ADGM SPECIAL PURPOSE VEHICLE (SPV) DO?
An ADGM Holding company is typically a parent corporation, existing as a private limited company (Ltd). An ADGM can own other companies (subsidiaries), property, patents, trademarks, stocks, and other assets, wherever they may be.
Another significant benefit for investors using the ADGM free zone ecosystem, is the use of an ADGM vehicle to own Dubai properties. In the past, the Dubai Land Department (DLD) had restricted the types of companies which were permitted to own property 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)?
In creating the Special Purpose Vehicle model, ADGM has drawn on the best available structures internationally and offers several different vehicles to fulfil narrow, specific, or temporary corporate objectives. ADGM Special Purpose Vehicle Company offers a competitive cost regime with a committed focus on speed and ease of process.
An SPV can benefit from a receiving a flow of dividends and royalties from underlying investments and /or assets.
ADGM SPV CASE STUDIES IN PRACTICE
Below we have listed some of the key uses of an ADGM SPV such as:
- Re-domiciliation and migration of SPV/Holding companies from other jurisdictions. Common example is migration from BVI to ADGM to streamline compliance and mitigate risk.
- 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.
- To secure loans extended by the lenders by forming asset backed securities.
- Based on the structure the holders will have the first right over assets purchased via the proceeds of the loan.
- Financing Transactions
- Used for financing and off-balance sheet transactions.
- Raise funds without increasing debt of a Parent office or company.
- Real Estate Investment
- Utilised to acquire, purchase, and hold title to real property in Dubai, UAE and worldwide.
- Formed for the purpose of transferring of assets and associated agreements.
- 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.
- Used to raise capital at beneficial rates with credit worthiness of a SPV backed by its assets.
- Holding Intellectual Property
- Vehicle can be used for separating a valuable IP into a separate structure, with minimal liabilities and can be used to help raise funds and enter into agreements with other third parties.
- The vehicle can also enter into licensing and IP agreements when required, and the shareholders will have an entity into which they can have any royalties or licensing fees paid into
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:
- All ADGM registered entities can apply for a Tax Residency Certificate from the UAE Ministry of Finance to benefit from the UAE Double Tax Treaty network. The entity will need to meet the criteria set out by the Ministry of Finance.
- It is mandatory that the SPV demonstrates substance within the UAE.
ADGM & ECONOMIC SUBSTANCE REQUIREMENTS (ESR)
Like other jurisdictions and free zones within the UAE, the ADGM have outlined the Economic Substance requirements for ADGM SPV’s. The authorised signatory of the said ADGM entity will have to be a GCC-resident and the entity must also hold assets with the UAE and/or GCC. Hence, the ADGM Registrar must be satisfied that the applicant/licensee has fulfilled the ‘Nexus Requirement’.
The ADGM SPV regime is well regulated, flexible and a very cost-effective vehicle. It provides a holding structure with many uses, resident in the UAE (subject to fulfilling the resident requirements), and simple reporting obligations within a respected jurisdiction.
For more information on ADGM SPV structures contact info@creationbc.com or call +971 4 878 6240 for a free consultation.
