WHAT IS A HOLDING COMPANY?
A holding company is a legal entity that owns other companies’ assets and/or shares. It does not engage in any business activity itself, but it holds its subsidiaries to manage them. It also protects its shareholders from any liability issues by isolating their assets from the liabilities of its subsidiaries.
Holding companies are often used to hold shares in other businesses, however they can also be used to hold intellectual property, cash assets, real estate, investments, stocks and shares or any other property that can be structured as a company asset.
Holding companies are usually established for the purpose of having one central control point for a group of companies and/or their assets and liabilities.
WHAT ARE THE TYPES OF HOLDING COMPANY IN THE UAE?
There are various holding company types offered in the UAE, here are some of the most popular options:
- Onshore Holding Company – Establishing a holding company on the UAE mainland allows for the option of engaging in commercial and administrative activities through the subsidiary companies within the UAE, and abroad without engaging in direct trading or commercial activities. The company is established and regulated by the Ministry of Economy and the UAE law requires registering any holding company as a commercial business or activity.
- Freezone Holding Company – The UAE government has established over 60 economic free zones across the major Emirates of UAE, including Dubai, Abu Dhabi, and Sharjah, to facilitate foreign investment and commerce. A free zone allows you to operate with greater flexibility and offers several incentives, such as tax exemptions, no currency restrictions, and the ability to repatriate 100% of your profits and principal investment. The most popular options in the Freezone category are Dubai International Finance Centre (DIFC) and Abu Dhabi Global Market (ADGM) due to their additional incentive of being subject to Common Law, as opposed to Sharia Law.
- Offshore Holding Company – The two principal jurisdictions offering Offshore Companies in the UAE are Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA). Both jurisdictions levy no income tax, low corporate tax and permit 100% foreign ownership.
Both RAK and JAFZA have their own specific benefits. RAK is more cost effective of the two, but JAFZA is the only Offshore Company that is legally permitted to own property situated in Dubai. It is worth noting that offshore UAE holding companies may not carry on business with persons resident in the UAE or have physical premises within the UAE.
WHY IS THE UAE A POPULAR LOCATION FOR HOLDING COMPANIES & WHAT ARE THE BENEFITS OF ESTABLISHING A HOLDING COMPANY IN THE UAE?
A holding company in the UAE is a great way to manage and protect your assets. It also offers many benefits such as tax efficiency, lower risks, no specific share capital requirement, greater flexibility, and greater diversification of the subsidiary companies. With the implementation of 5% VAT and 9% corporate tax, the UAE is anything but “tax-free”. However, still, the best thing about the country’s tax regime is the taxes are relatively low. And this simply means running a holding company in Dubai is cost-effective.
CASE STUDY: STRUCTURING A DIFC HOLDING COMPANY FOR REAL ESTATE
We had a global client contact Creation Business Consultants because they needed to structure a holding company in DIFC, to manage a real estate portfolio across the Gulf (GCC). We facilitated onshore compliance, as well as the creation of a Prescribed Company (HoldCo) in DIFC through obtaining IP rights for their brand. The client was able to succeed and centralize the management of their assets while reducing the level of legal risk of maintaining the company’s onshore jurisdictions and received further benefits of remaining within a well-documented and respected legal framework by operating under DIFC.
STEP-BY-STEP DIFC HOLDING COMPANY FORMATION
Setting up a holding company in DIFC has a clear process, which can be broken down as follows:
1) Planning and Research
- Determine your purpose for establishing a business such as asset protection, tax effectiveness, or simple group consolidation.
- Creation Business Consultants will provide personalized recommendations to optimize your DIFC setting.
2) Decide on Structure
- Be sure the structure supports compliance and scalability with DIFC regulations. Check our DIFC business structures page for more details.
3) Obtain relevant permit or license
- Secure a commercial license from Dubai Financial Services Authority (DFSA) if your holding company will have regulated activities.
- Creation Business Consultants can advise and guide clients when obtaining permits and licenses.
4) Establish Compliance & Corporate governance
- Determine the governance framework in Memorandum of Association (MOA) and Articles of Association (AOA).
- Make Board appointments and register Board members on the DIFC portal to satisfy compliance obligations.
IDEAL ACTIVITIES FOR DIFC HOLDING COMPANIES
Being flexible allows DIFC holding companies to support several strategic activities, such as: