UNDERSTANDING THE DIFC LEGAL & REGULATORY LANDSCAPE FOR EXIT
For all communication relating to companies being incorporated, amended, re-domiciled in or out of the DIFC, liquidations, etc., the main regulatory body that will oversee all such communication will be the DIFC Registrar of Companies (ROC). If the companies in question have financial activities pegged to the licence, then the Dubai Financial Services Authority (DFSA) will have additional oversight to double-check things like the capital adequacy of the company, asset protection, etc., to protect the stakeholders of each of these companies if any changes are made.
The main legal framework is the DIFC Companies Law No. 5 of 2018 for corporate structures and mergers, the Operating Regulations for day-to-day compliance, and the Insolvency Law No. 1 of 2019 for winding up and restructuring, all aligned with international best practices like English common law principles.
For companies in the DIFC that are shutting down or exiting, legally you distinguish between the two by either a voluntary wind-up or a strike-off for dormant entities, and insolvent scenarios involving companies that have chosen to get a court involved by choosing to enter a company voluntary arrangement (CVA). If the company is inside the DIFC, it must integrate the DIFC common rules with the UAE federal laws on tax and employment, plus international laws.
WHEN TO WIND DOWN VS WHEN TO RESTRUCTURE – A DECISION FRAMEWORK
Key Questions To Ask
Determine if there is a strategic reason for keeping the DIFC entity, like the protection of key assets by the DIFC’s excellent legal system, the holding of a DFSA license for the financial sector’s credibility, or the use of the DIFC Courts’ goodwill for fast dispute resolution. Performance decline because of market changes, regulatory constraints from DFSA updates, the necessity for cost-effective structures when fees are on the rise, and group-wide reorganization due to global tax reform are some of the factors that can be identified.
Typical Scenarios
An SPV after an investment cycle, where operations are no longer active, is a candidate to be liquidated or struck off so as not to be burdened with maintenance costs. A failing operating company with potential for development may prefer restructuring through debt renegotiation or new capital infusion rather than outright deletion. Family offices post-succession sometimes needs governance alterations, such as charter amendments, but not full liquidation. Business groups relocating substance might opt for an incorporation transfer or merger to be effective.
OPTION 1 – SOLVENT VOLUNTARY WINDING UP & LIQUIDATION OF A DIFC ENTITY
What Is Voluntary Liquidation In DIFC?
Voluntary liquidation under DIFC Insolvency Law No. 1 of 2019 is the process through which shareholders agree to dissolve a company that is still solvent and appoint a liquidator to sell the assets, pay off the liabilities, and distribute the remaining assets to the shareholders. This is different from the strike-off, which is applicable for dormant companies that do not have any assets to distribute formally, and from court-ordered winding up, which applies to insolvency cases. Although it can be applied to SPVs or holding companies that no longer need to be kept, it is a costly process and is used only when all the entities’ debts can be paid within a year.
DIFC-Specific Considerations Before Liquidation
Prior to liquidating a company in the DIFC, several matters need to be considered, including evidence of solvency through the most recent audit of financial statements and proof that ROC filings have been completed, such as confirmation statements, and compliance with DFSA requirements for regulated businesses (including client asset transfers). Companies must also ensure that there are no pending DIFC Court actions or contracts and must obtain any necessary regulatory approvals for regulated activity in sensitive sectors.
The calculation of end-of-service gratuities must be made according to the DIFC Employment Law for employment in the DIFC, considering notice period calculations, as well as coordination with the UAE authorities regarding visa procedures.
High-Level DIFC Liquidation Pathway
A company may begin its path to liquidation by means of a board resolution, which will be followed by the approval of the company’s shareholders, who will appoint a liquidator registered with the ROC. The ROC filings must include solvency declarations and public notices, where required. The liquidator will have the responsibility for realising the assets of the company, liquidating the company’s liabilities, and preparing the final accounts of the company, which will then permit the ROC to deregister the company. For a full step-by-step breakdown of the liquidation process applicable to companies in Dubai (including companies in DIFC Free Zones), see the Guide to Company Liquidations in Dubai.
Timelines, Costs & When Liquidation Is Preferable
Timelines can last up to several months, depending on the procedures, complexity, and DFSA approvals, if it is a regulated entity. The costs associated with liquidating a company will vary; however, you will need to factor in liquidator fees, authority fees, advisory service fees, audit costs, ROC / DFSA charges, etc. Liquidation is the option that should be considered over strike-off for those companies that have assets or creditors, as it provides formal closure and guarantees the support of stakeholders.
OPTION 2 – STRIKE-OFF & DEREGISTRATION OF DORMANT DIFC ENTITIES
What is Strike-Off / Deregistration in DIFC?
ROC’s strike-off process under DIFC Companies Law allows the deregistration of non-operational entities without formal liquidation and is simpler for dormant companies with no liabilities.
Eligibility & Conditions
Entities must be in good standing, with no outstanding fees, fines, or breaches; no material creditors or employee claims; and DFSA approval is required for regulated firms.
Advantages, Limitations & Risks
Advantages include speed and lower costs for clean entities; limitations prevent it for active or indebted ones; risks involve resurfacing liabilities, necessitating thorough creditor checks—opt for liquidation if uncertainties exist.
OPTION 3 – RESTRUCTURING YOUR DIFC ENTITY INSTEAD OF CLOSING IT
Commercial Reasons to Restructure
Restructure when viable but needing adaptation, like shifting markets, attracting investors, pre-sale optimization, or to streamline governance and reduce costs under DIFC’s flexible framework.
Corporate & Governance Restructuring Tools
Adjust shareholdings via buyouts or issuances; amend Articles or Foundation Charters for enhanced governance, such as adding boards or policies for family holdings.
Operational Restructuring in DIFC
In certain instances, entities that have originally formed large, complex, and expensive corporate groups and structures to serve an original purpose do not fit that purpose a year or two later. Therefore, it makes sense to modify these structures for leaner holdings and to relocate certain functionalities while maintaining compliance, thus reducing overall unnecessary operational expenditure.
Financial Restructuring & Use of DIFC Insolvency Tools
Normally, a Creation Business Consultant advisor would take a step back and recommend speaking with a qualified financial advisor when the company is facing genuine financial difficulty in repaying debts that no amount of restructuring can mitigate. A financial advisor or qualified debt consultant would advise the company to utilize Company Voluntary Arrangements with its debtors, in which the court supervises and manages an agreement between the company and the creditor.
OPTION 4 – TRANSFER OF INCORPORATION / REDOMICILING CORPORATE ENTITIES
What is Transfer of Incorporation?
On several occasions, clients have requested to discuss the feasibility and the potential savings of redomiciling foundations or holding companies in or out of the UAE, mainly due to tax law changes across different countries. The UAE is a tax-friendly environment, and the process to move a company here into the DIFC is a relatively simple one. The procedure is regulated by the DIFC courts, and the respective legal framework is Law No. 5 of 2018, which permits outward continuation for companies, provided the receiving jurisdiction supports inward migration and all regulatory approvals are obtained. It preserves legal continuity, avoiding disruptions like tax events or contract renegotiations that might occur in a full wind-up.
When Re-Domiciling the Company Makes Sense
This process is preferred when the move of the company is advantageous for either a Family Office or a group of investors who want to align their interests by moving to jurisdictions with favorable tax treaties or regulatory environments, responding to evolving UAE corporate tax rules (e.g., post-2023 9% regime), or consolidating group structures to centralize operations and reduce administrative burdens. It’s ideal for holdings or SPVs seeking substance in investor home countries or adapting to global changes like BEPS 2.0, but requires careful assessment of exit taxes, continuity of DFSA licenses if regulated, and compatibility between jurisdictions.
High-Level Process
It is essential to conduct an initial check of the company in question to ensure that it is still in good standing with respect to the DIFC. This includes confirming that the ROC filings are current and that the company has no outstanding liabilities or disputes. After that, you will need to get the board and shareholders’ resolutions that sanction the transfer, and then you will file an application to the ROC along with the supporting documents, which, for instance, may include solvency declarations and an explanation of the receiving jurisdiction’s laws. In addition, you will have to make sure that the target jurisdiction (for instance, ADGM, Cayman Islands, or BVI) not only permits the inward re-domiciling but also complies with its obligations, such as notifying creditors or obtaining regulatory consents. Following the approval stage, the registration will be in the new jurisdiction, banking and contracts will be updated for the purpose of continuity, and there will be the handling of any DFSA notifications for regulated entities. The whole process is likely to take around 1–3 months, depending on how complex the situation is.
OPTION 5 – SALE, MERGER, OR GROUP REORGANIZATION
Selling The DIFC Entity
Share sales are typically preferred over asset sales in the DIFC to preserve the contracts, DFSA licenses, and bank accounts, thereby avoiding VAT on the transfer of individual assets under UAE tax regulations. The first thing to take into account is that comprehensive due diligence must be done on the legal (e.g., ROC compliance), financial (audited accounts), and regulatory aspects (DFSA approvals for change of control in authorized firms); guarantees and indemnities must be worked out to cover risks arising from the sale; and price adjustments must be made for working capital or earn-outs. Selling assets may be the right way to go when it comes to selecting specific holdings, but it will also mean paying higher taxes and obtaining the consent of creditors.
Mergers & Combinations
A merger is the best move if one wants to combine and strengthen two or more businesses. At present, among the available scenarios, mergers are the safest and most preferred option. Under the DIFC Companies Law No. 5 of 2018, mergers enable not only public companies but also private entities to merge in a manner that facilitates group restructuring by combining balance sheets and operations without full dissolution. Use cases include integrating complementary DIFC funds or holdings to enhance efficiency, with requirements like shareholder approvals (75% majority), court sanctions for schemes of arrangement, and ROC filings. This provides creditor protections and tax neutrality in qualifying cases, differing from the mainland UAE, where mergers are more restricted.
Internal Group Reorganizations
As discussed previously, large and complex structures that were necessary upon incorporation can become costly over time. Once you have engaged with one of our consultants, we will work with you to identify where you can minimise operational expenditure.
Firstly, it will be necessary to ensure that your company coordinates fully with the DIFC regulations (e.g., ROC approvals for share transfers), UAE onshore rules (e.g., no transfer taxes on qualifying restructurings under Federal Decree-Law No. 47/2022), and home-country considerations like CFC rules or withholding taxes. The process is secured by providing documentation that consists of valuations, board resolutions, and tax clearances to help avoid deemed disposals, and, in case of any regulated activities, the involvement of the DFSA will be required. Our expert tax and corporate structuring team will assist and complete the process.
PRACTICAL COMPLIANCE CHECKLIST FOR DIFC EXIT OR RESTRUCTURING
Governance & Documentation
Prepare comprehensive resolutions that will cover the rationale and the steps for the selected option, and that will synchronize with the Articles of Association; complete formal engagement letters for the liquidators, legal, and tax advisors; revise the organizational charts and capitalization tables so that they portray the post-transaction structure, and have them notarized if necessary for cross-border validity.
Regulatory & Registry Steps (DIFC Focus)
Submit customized ROC applications (e.g., Form CONT-1 for continuation out); provide early notification to the DFSA for regulated entities, including wind-up plans and client asset transfers; adhere to DIFC Court procedures for insolvency-related restructurings; and retain records for seven years post-deregistration, according to DIFC Data Protection Law and Companies Regulations.
Stakeholder & Operational Tasks (Brief)
Calculate and settle employee end-of-service benefits under DIFC Employment Law No. 2 of 2019, coordinating visa cancellations with GDRFA; close or transfer bank accounts with prior notifications to avoid freezes; terminate or assign contracts with landlords, clients, and suppliers, and obtain consents to prevent breaches.
Tax & UBO Considerations (High Level)
It is essential that, before all submissions are made, you update or deregister the most recent and up-to-date UBO details with the ROC.
Careful planning and attention are required for assessing cross-border tax impacts, including relevant jurisdictional exit taxes, foreign CFC rules, and potential reliefs under double tax treaties. We always recommend that clients conduct a tax feasibility study first, to determine whether there are monetary tax savings on redomiciling the corporate entity to a new jurisdiction, including the overall costs of the move, as it can be a costly process.
Common Pitfalls & How to Avoid Them
The most frequent mistakes include inaction on licenses or ROC filings without completing the necessary formalities or leaving these issues until the point of an audit or a tight deadline. Post-closure disputes may arise if minor creditors or employees are not considered; this can be prevented by performing full stakeholder mapping and reaching out to all affected parties.
Other common pitfalls include ignoring integration with group tax planning, which can create unawareness of liabilities such as capital gains. This can be mitigated by obtaining pre-exit tax opinions. Insufficient documentation can leave directors open to claims, so it is important to maintain detailed records and formal resolutions.
For businesses under supervision, closing operations before DFSA approval without confirming that client assets, records, and complaints are settled can result in enforcement action. Always obtain written approval from the regulator first.
HOW CREATION BUSINESS CONSULTANTS CAN HELP
Creation Business Consultants offers full-scale diagnostic evaluations of current DIFC structures, highlighting strategies for liquidation, redomiciliation, or business restructuring services. We provide active support in drafting resolutions, communicating with the ROC and DFSA to obtain approvals, and achieving optimal tax outcomes through our advisory services, working closely with clients throughout the process.
TAKEAWAY
Leaving or changing the form of a DIFC company requires a forward-looking approach that goes beyond mere administrative formalities. It involves careful planning to manage risks, optimise costs, and address stakeholder considerations effectively. For personalised guidance tailored to your circumstances, contact us today for a free consultation at [email protected] to secure the best possible results.
