Abu Dhabi Global Market (ADGM), the premium financial free zone in the UAE, provides investors with a secure platform to reach the Middle East markets by establishing Special Purpose Vehicles (SPVs). By establishing SPVs in ADGM, investors can isolate financial and legal risk by ring-fencing their assets and liabilities. The ADGM SPVs can be used to hold assets, shares or Intellectual Property (IP) under a common-law jurisdiction.
ADGM allows the investors flexible corporate structures while incorporating SPVs. Furthermore, the investors can benefit from the Double Taxation Avoidance Treaties ( DTA) signed by the UAE with other countries. Investors are required to consult with registered agents in the UAE to set up an ADGM SPV. Meanwhile, this article throws light on the features, benefits, requirements and process of setting up an SPV in ADGM free zone, Abu Dhabi.
Key Uses for Typical Special Purpose Vehicles in ADGM
Be it asset holding or investment protection, investors set up SPVs in ADGM to suit their specific requirements. Some of the typical uses for SPVs are listed below:
Securitization
Securitization is the most common reason why SPVs are being used across the world including in the UAE. Large commercial banks often create an SPV while issuing mortgage-backed securities from a pool of mortgages. The SPV enables the original owner or originator ( a bank in this case) to isolate the loans from their other obligations. The SPV enables the investors in the mortgage-backed securities to have priority to receive payments on the loans over other creditors of the bank.
Real Estate Investment
Real estate investment is another typical use for an SPV where investors can use it to acquire title to real property. An ADGM SPV helps investors to limit the recourse of mortgage lenders depending on the location of the asset. In some jurisdictions, the sale of the SPV’s shares can result in lower taxes and transaction fees when compared to transferring the asset.
Financing
Investors use SPVs to ring ring-fence investments, which facilitates financing without increasing debt levels for the parent company or exposing the parent’s assets, or SPV’s assets, to cross-liabilities.
Asset Transfer
An SPV is one of the most reliable corporate structures for investors who seek to transfer assets. In case of assets that are hard to transfer for specific reasons, the investors can form an SPV to own those assets. When the investors want to transfer these assets, they can sell the SPV as part of a Merger and Acquisition.
Risk Sharing
Sometimes a corporations’ project may contain certain significant risks. In such scenarios, an SPV can be used to create project companies for joint ventures. This will legally isolate the joint venture partners from risks inherent in the project.
Raising Capital
SPVs can be used to raise capital at favourable rates in certain situations, with creditworthiness determined by the available collateral of the SPV, rather than the credit rating of the parent company.
Intellectual Property
SPVs in ADGM can be used to separate valuable IP into a standalone SPV which has minimal liabilities and can be used to raise funds and enter into license agreements with third parties. Also, a useful tool to manage products with a variety of IP components.
Types of Special Purpose Vehicles in ADGM
The process of business setup in ADGM is so flexible that the investors can easily meet the conditions set out to form SPVs that have narrow, specific or even temporary corporate purposes. The rules of SPV company formation in ADGM are as per ADGM Companies Regulations 2015. For SPVs, the ADGM grants a commercial license stating that the company is undertaking ’Special Purpose Vehicle’ activities.
The ADGM Companies Regulations framework provides the following types:
Private Company Limited By Shares
A private Company LTD can be registered as a Standard Private Limited Company or a Passive Holding Company
Restricted Scope Company
Restricted Scope Company (RSC) is a unique form of ADGM SUV that offers minimal information disclosure on the public register. However, full disclosure to the ADGM Registrar is mandatory. RSC can be incorporated as the following:
- A subsidiary of a group that publicly files consolidated accounts
- A subsidiary of a company formed by Emiri decree
- A subsidiary of a Single-Family Office
Key Highlights of an ADGM Special Purpose Vehicle
SPVs formed in ADGM are bound by the following requirements and features:
Registered Office Address
ADGM mandates that all the SPVs incorporated in the free zone should have a registered office in Al Maryah Island at all times. A registered address can be acquired in three ways:
- If the business setup consultants in the UAE have an office in ADGM, the investors can use that address as the registered address of the SPV
- Existing entities having a physical office in ADGM can use that address for all of their SPV subsidiaries
- In another method, the investors can establish an ADGM holding company and use its address as the registered address of all of their SPV subsidiaries
Easy to Redomicile into Abu Dhabi Global Market
Companies that are incorporated outside ADGM can apply for the issuance of a certificate confirming that it continues as a company registered under ADGM Companies Regulations. However, the company must be authorised to apply for migration into ADGM as per the laws of the jurisdiction under which it is currently incorporated. Consult with the best business setup consultants in the UAE to make the migration to ADGM easier.
Process of Setting up an SPV in Abu Dhabi Global Market
Investors can consult with approved business setup consultants in Abu Dhabi to apply for setting up an SPV in ADGM. The investors should file a brief business plan including structure, shareholders and purpose and provide application documentation to the Registrar through business setup consultants who act as registered agents in ADGM. The documentation should include:
- Articles of Association
- Registered office address
- Copy of Resolution of Board of Directors or Shareholders
- Copy of Passport information and signature page for each Authorised Signatory, Director, Shareholder, and Beneficial Owner
- Copy of UAE Visa page in the passport for each Authorised Signatory (for UAE residents)
- Copy of Emirates ID for UAE national Authorised Signatories
- Copy of Certificate of Incorporation / Registration for each Director and Shareholder that is a body corporate ( it should be certified within last three months)
How can Jitendra Business Consultants Help?
Setting up complex corporate structures such as SPVs in ADGM requires expert assistance from the best business setup consultants in the UAE such as Jitendra Business Consultants. JBC has a team of qualified company formation specialists who can advise investors on the most suitable corporate structures. If SPV is ideal, JBC can help the investors with the documentation and obtaining a registered address. Since SPV is a complex structure, JBC can assist the investors to meet compliance requirements such as Anti-money Laundering and Economic Substance requirements if applicable.