DIFC Prescribed Company Regulations
UAE / Corporate Structuring
The investment attractiveness of the UAE has witnessed a steady increase over the past years. Despite the repercussions of the COVID-19 pandemic that has cast a shadow on the volume of investment, trade and world economies, Foreign Direct Investments (“FDI”) into the United Arab Emirates achieved a growth of 4% during the year 2021. Today, the UAE is looking to attract even more investments, promote its investment environment, and provide greater incentives to investors. For instance, in 2021 the UAE allowed 100% foreign ownership of local businesses by global investors in the UAE mainland to increase FDI in the UAE.
With its topnotch infrastructure, strategic location and business-friendly environment, Dubai has become the preferred location for global investors and entrepreneurs shaping the future.
In its continued efforts to be the jurisdiction of choice for global corporate conglomerates, family businesses and some world-renowned retailers, the Dubai International Financial Centre (“DIFC” or “Centre”) has lately expanded the Prescribed Company (“PC”) Regulations regime.
As some may recall, in October 2019, in order to support expansion of business structures in the DIFC, the DIFC enacted the original PC Regulations (“Regulations”). The popularity of the PC offering under the Regulations resulted in the DIFC broadening their scope, in May 2020.
Further, due to the fact the regime was getting enormous traction within the business community, the DIFC assessed the additional areas the Regulations could apply to. Consequently, the Centre enacted the PC Regulations 2022 (“New Regulations”).
What is a PC?
A PC is a category of a DIFC company limited by shares. It is primarily governed by DIFC Companies Law No 5 of 2018 and the Companies Regulations (“General Companies Regime”). However, to the extent the New Regulations introduce a distinct framework, each PC benefits from the New Regulations, as those prevail over provisions of the General Companies Regime in respect of the PCs.
For instance, Regulation 2.1.4 of the Companies Regulations, whereby within 60 days of the approval of the application by the Registrar of Companies, a company must take substantive steps to establish its operations in the DIFC, does not apply to a PC.
Another example is that a PC that has a Qualifying Purpose of a Structured Financing (see the list of Qualifying Purposes below) is exempt from any requirement to file its accounts with the Registrar or have them audited.
In addition, rather than having to rent its own office space in the DIFC, a PC (apart from the PC that was formed by a DIFC retailer) can share office space with another DIFC entity, or use a registered office address of a corporate service provider.
Finally, a PC benefits from a truly symbolic license fee of USD 1,000 a year. As competitive as it gets!
Who can form a PC?
The PC regime is very attractive to businesses from the operating and financial standpoint.
Therefore, the DIFC have kept this regime reserved for some categories of applicants, only.
So who can apply to the DIFC to form a PC rather than a regular company limited by shares?
Under the New Regulations, a PC can be formed by a Qualifying Applicant(s) and/ or for a Qualifying Purpose.
The following parties can apply to the DIFC to form a PC:
an Authorised Firm (licensed by the DFSA/Recognised Regulatory Authority);
a Fund (foreign/ domestic);
a Government Entity (minimum 25% ownership by the UAE/ emirate/ local government);
a DIFC Registered Entity (apart from another PC or a DIFC Non Profit Incorporated Organisation);
a shareholder or an Ultimate Beneficial Owner of a DIFC Registered Entity;
an Affiliate of a DIFC Registered Entity (Common Ownership/Control with a DIFC Registered Entity, joined network/ common branding); or
a Family Operated Business (with sufficient substance in the UAE – no limitation on the nationality of the family members).
Regardless of the parties applying to the DIFC to form a PC, the PC may be established if the purpose of the PC is linked to either of:
an Aviation Structure (entire asset or its parts);
a Crowdfunding Structure;
a DIFC Holding Structure;
an Innovation Holding Structure (including Fintech entities);
an Intellectual Property Structure;
a Maritime Structure (entire asset or its parts); or
a Structured Financing (bond/ sukuk offerings).
Said the above, the following types of activities cannot be conducted under a PC:
Moreover, if the PC is formed by a Qualifying Applicant, it will be licensed to conduct any of the following activities:
Managing Office; or
Further, if the PC has been formed for a Qualifying Purpose, its commercial license will reflect the activity(ies) as per that business purpose, for which the PC was established.
Also, the DIFC’s vision is based on attracting businesses who have economic substance (“ES”) and presence in the Centre. While the DIFC continue to follow that approach, the Centre’s PC model is economically viable for multiple members of business community.
Finally, under the New Regulations, the DIFC require Qualifying Applicant(s) to satisfy the Registrar of Companies that their business complies with economic substance requirements, as per the ES regime.
As legal counsel, we often find ourselves in front of clients hearing their concerns and business objectives out. We also engage in dialog with authorities to see if the legal changes correspond to the expectations of the modern, dynamic and competitive world.
The DIFC never fail to impress. Their team assess general and sector-specific developments and needs of businesses, and continue to enhance their framework.
The New Regulations are yet another example of the true dedication to business community and the DIFC vision to offer state of art material law, court system and infrastructure to its members.