The Federal Decree-Law no. (32) of 2021 regarding commercial companies has introduced special purpose vehicle “SPV” companies as a new type of companies which was recognized for the first time in UAE mainland companies.
SPV were introduced the first time in UAE by freezones only, in specific DIFC and ADGM, in this article we will highlight the most significant features of SPV.
What is a SPV in accordance with the law No. (32) of 2021?
As per the new commercial companies law a SPV is a company established with the aim of separating the obligations and assets associated with a particular financing operation from the obligations and assets of the person who incorporated it or the mother company it may owned the SPV, and used in credit operations, borrowing, securitization, issuance of bonds, and transfer of risks associated with insurance, reinsurance, and derivatives operations.
However, it worth to be noted that this type of companies is exempted from the provisions of the law No. (32) of 2021 law and will be subject to the decision issued by the securities & commodity authority “SCA” regarding these companies which is not issued yet.
What are the establishment process of SPV in accordance with DIFC regulations?
DIFC issued the special purposes company “SPC” regulations which regulates everything related to SPCs.
What are the purpose and activities of a SPC?
The purpose of a SPC as set out in the company's articles of association must be limited to exempt activities. A SPC is prohibited from undertaking any activities other than exempt activities. However, if a SPC undertakes any activities which are not exempt activities, the registrar of companies shall, after the giving of notice to the SPC and the lapse of a reasonable grace period (to be determined in the sole discretion of the registrar of companies), be entitled to revoke the status of the company as a SPC. If the status as a SPC is thus revoked, the SPC shall cease to be a SPC.
A SPC may be used by (i) a trustee of an investment trust, (ii) an investment company, or (iii) an investment partnership, to hold the property of the relevant fund. A SPC may not be (i) the trustee of an investment trust, (ii) the general partner of an investment partnership, or (iii) an investment company. A SPC shall not undertake any financial services unless it is authorized by the Dubai Financial Services Authority to do so.
In addition to the SPC, the DIFC Authority Board of Directors has approved on 19 September 2016, with immediate effect “intermediary SPV” as an interim measure pending the completion of the new version of the DIFC Companies Law and Regulations
It is worth to be mentioned that the word “intermediate” above implies that it will neither be the primary holding entity at the top of a structure, nor will it be the actual operating entity further down the line in any relevant structure.
In order to establish an intermediate SPV an investor shall be deemed as a qualified applicant which fall under one of the following:
- Collective investment schemes established in the DIFC pursuant to the provisions of the DIFC Collective Investment Law and the DFSA’s Collective Investment Rules wishing to establish special purpose vehicle/s to serve the investment structure of the collective investment scheme involved.
- Collective investment schemes established outside the DIFC managed by a fund manager or an asset manager regulated by the DFSA (i.e., having at least a DFSA Prudential Category 3C license), wishing to establish special purpose vehicle/s to serve the investment structure of the collective investment scheme involved.
- Holding companies or other holding entities, proprietary investment vehicles (incorporated or unincorporated) and Single-Family Offices having a presence in the DIFC.
Furthermore, each qualifying applicant will have to provide sufficient assurances to the DIFC registrar of companies that Intermediate SPV’s applied for, will only use for purposes that fit into the overall objectives of the DIFC and, if applicable, in line with the requirements of the qualifying applicant’s regulatory status (inclusive of AML requirements) and the UAE’s obligations under the OECD’s Common Reporting Standard.
Where shall an investor establish the SPC/ intermediary SPV?
Generally, any freezone company must have an office space in the free zone entity however as a benefit DIFC allows the Intermediate SPV to utilize their existing presence in the DIFC by sharing the same office address so that no additional office is required for the incorporation of the Intermediate SPV, which again minimizes the overall cost aspect.
What are the Fees to register an intermediary SPV and SPC?
The incorporation costs are also far less compared to the incorporation fees of a SPC in the DIFC, with the application fee reduced to USD 1,000 and the annual license fee at USD 3,000. While to incorporate an SPC the application fees are USD 8,000, while the annual license fees are USD 12,000.
After determining DIFC SPC and intermediary SPV now we will talk a little bit about ADGM SPV.
What are the establishment process of SPV in accordance with ADGM regulations?
SPVs are corporate vehicles private companies established for a variety of purposes, including to isolate financial and legal risk by ring-fencing assets and liabilities. SPVs can be established as subsidiaries, project, or joint venture vehicles to ensure that only those assets linked to a related transaction are exposed to the liabilities associated with that transaction. The key feature of an SPV is its separate legal personality, therefore claims by the SPV’s creditors cannot be attached to the assets of the SPV’s shareholders or any related companies.
What are ADGM SPV Types?
First type: Private Company (Limited by Shares) – LTD
- Standard private limited company
- Passive holding company
Second type: Restricted Scope Company “RSC”
- A unique ADGM legal structure offering-limited information disclosure on the public register but full disclosure to the ADGM Registrar.
RSCs must be incorporated as the following:
- A subsidiary of another body corporate that prepares and publishes group accounts
- A subsidiary of a company formed by Emiri decree
- A subsidiary of a single-family Office
What are the fees and time frame to establish SPV in ADGM?
Fees for registration and incorporation are in US dollars. The registration fees to establish an SPV in ADGM are as follows.
While the time frame to establish a SPV is two weeks.
How to set up a SPV in ADGM?
The entire application and fee payment are fully digital and can be completed through ADGM’s online registry solution.
There are no requirements for personal visits to ADGM during the setup process or for the delivery of original hard copies of any documents. SPV applicants will fall under one of two categories, which will dictate the means by which their applications can be submitted, that is, “Exempt” or “Non-exempt” applicant. In summary, Exempt applicants will not have to appoint a Company Service Provider for the application and management of the SPV, whereas Non-exempt applicants are required to appoint an ADGM company service provider to submit the SPV application and provide company services (such as registered address and filings) on the SPV’s behalf.
Who are exempt applicants?
A body corporate that is a subsidiary undertaking of any of the following need not have a company service provider:
- Persons Exempt under the Commercial Licensing Regulations 2015 (Exemptions) Order 2020
- An authorized person within the meaning of the Financial Services and Markets Regulations 2015
- Persons licensed or regulated by the Central Bank of the United Arab Emirates
- A company whose shares are admitted to trading on a regulated market in the United Arab Emirates, including in Abu Dhabi Global Market
- A company that has demonstrated to the satisfaction of the registrar to have:
- Substantial assets, turnover and employees in the United Arab Emirates
- Adequate governance policies and procedures, in each case as may be specified by rules made by the Board or guidance issued by the Registrar.
For the purposes of assessing whether a company has demonstrated adequate presence in the United Arab Emirates, the Registrar:
- May have regard to, among other things:
- The company’s assets, turnover and employees in the United Arab Emirates
- The company’s governance policies and procedures
- Any rules made by the Board or guidance issued by the Registrar in this regard
- May require such further information and supporting documentation as it considers appropriate.
Applicants seeking exempt status are required to include supporting documents demonstrating substantial resources, experience and personnel of the legal entities directly or indirectly owned and/or controlled by the incorporating shareholder of the ADGM SPV.
Who are Non-exempt Applicants?
Non-exempt applicants are those who do not meet the conditions listed in the section above entitled ‘Exempt applicants. Non-exempt applicants must appoint an ADGM licensed company service provider “CSP“ prior to lodging application with ADGM. The CSP will be responsible for both the formation and administration of the SPV.
Based on the aforementioned a SPV is a company that can engage in a passive activity and is not allowed to act in an operational manner, for example a SPV can hold shares in a real estate development company, however the SPV itself cannot engage in the real estate development activities, according to this the SPV does not have any employees and would not be eligible for any work or residency visas in the UAE.