DIFC Prescribed Company Regulations
Corporate Structuring / UAE
Izabella SzadkowskaPartner,Corporate Structuring
Noff AlKhafajiSenior Counsel,Corporate Structuring
The United Arab Emirates has emerged as a global economic powerhouse, experiencing robust growth fueled by its ambitious Vision 2030. As the complexity of business operations increases and business management strategies evolve, the demand for sophisticated corporate structures has become increasingly critical. Businesses, family offices, and high-net-worth individuals are seeking versatile and adaptable corporate vehicles to optimize their portfolios, manage assets strategically, and navigate complex regulatory environments.
Recognizing this trend, the Dubai International Financial Centre (DIFC) has taken a proactive step by introducing a revamped Prescribed Company (PC) regime. This move highlights the DIFC's commitment to providing a flexible and favorable environment for businesses while maintaining robust regulatory oversight. By expanding the scope of the PC regime while upholding essential safeguards such as the Economic Substance Requirement (ESR), the DIFC has solidified its position as a leading jurisdiction for investment in the region.
The PC Regulations 2024 (Regulations) are the latest set of regulations issued by the Board of Directors of the DIFCA to govern the incorporation and operation of PCs in the DIFC.
A PC is a title given to a private company limited by shares that can benefit from certain exemptions and concessions under the Regulations, such as lower fees, reduced reporting and disclosure requirements, and flexibility in choosing its registered office. However, a PC must also satisfy certain qualifying requirements and restrictions, for instance it needs to be controlled by specific categories of persons, or be formed for a qualifying purpose, or hold GCC registrable assets.
The Regulations consolidate and replace their previous versions of 2018, 2019 and 2020.
Previously, establishing a PC in the DIFC was restricted to: (i) qualifying applicants with existing DIFC ties; or (ii) specific low-risk entities undertaking a qualified purpose, such as structured financing. The Regulations significantly broaden eligibility.The DIFC has replaced the previous PC regime with two new offerings called:
Prescribed Company – Passive Holding – this option is available to entities that serve as a passive holding company, alike SPVs in some other jurisdictions, unless the PC is set up for a qualifying purpose, in which case it may serve such qualifying purpose; and
Commercial Package – Active Enterprise – this option is available to entities that wish to conduct holding company activity, managing office and the other proprietary investment activities.
Below is the snapshot of the two new offerings under the Regulations: Scroll down to see the full table.
Questions
PC – Passive Holding
Commercial Package – Active Enterprise
Who can set it up?
It can be established in the following scenarios:
If any of the following parties will control it:
a natural person who is a citizen of a GCC Member State;
a body corporate or body unincorporate, including a company, partnership, or unincorporated association, that is controlled by one (1) or more natural persons who is are citizens of a GCC Member State; or
a body corporate that has any class of its securities listed on a securities exchange in the GCC.
To hold legal title to, or controlling, one (1) or more GCC registrable assets, i.e. assets or property interests that must be registered with a GCC authority to establish legal ownership, secure rights, or claims against it, and to provide public notice (e.g. a share certificate, commercial license, title deed, etc.) of such interests;
If the proposed PC intends to be registered to serve under aviation, maritime, intellectual property, crowdfunding, or structured financing structure.
Any person, provided that an employee of a Corporate Service Provider (CSP) is appointed as a director of the PC, and that the CSP has an arrangement with the DIFC Registrar of Companies (ROC) to carry out certain AML/Compliance functions on behalf of the ROC.
An Active Enterprise can be set up by:
A DIFC entity other than a PC, NPIO or Foundation.
A Controlling shareholder or UBO of a DIFC entity, other than a PC, NPIO or Foundation.
An Ultimate beneficial owner that controls a DIFC entity.
A UAE/Emirate Government Entity, an entity 25% owned (directly or indirectly owned) by a UAE/Emirate Government Entity, or an entity otherwise controlled by a UAE/Emirate Government Entity; or
A Family Operated Business.
What business activities can it conduct?
Holding company (passive)
Holding company
Managing office
Investment in: commercial enterprises and management, real estate, agricultural enterprises and management, healthcare enterprises and development, educational enterprises and management, industrial enterprises and management, oil and natural gas project, and retail trade enterprises and management
Can it have a physical office?
It can have its own DIFC office space, use a co-working desk, share office space with its DIFC affiliate or, if the entity has no employees, use a DIFC CSP’s registered address.
Can it hire employees?
No
Yes
How much does it cost?
USD 100 Application Fee (one time);
USD 1,000 Annual commercial license fee;
Data protection fees: About USD 750 per year
If your entity no longer meets the qualifying criteria under the Regulations and is not considered as a PC effective from 15 July, the discounted license fee of USD 1,000 will continue for the next two years. After that period, either your entity does not qualify to continue as a PC or an Active Enterprise and will be treated as a the standard DIFC entity that will have to pay the license fee of USD 12,000 per year; or your entity meets the Active Enterprise criteria, and can continue to operate under the Commercial Package.
Entities formed under the Regulations can benefit from a streamlined and cost-effective corporate structure with numerous advantages, e.g.:
Affordability: Low setup and annual fees, along with flexible address options, make them financially accessible.
Efficiency: Swift registration and a straightforward legal framework facilitate a rapid setup process.
Global Reach: A competitive tax regime, zero currency restrictions, and full foreign ownership attract international investors.
Flexibility: They can be used for various purposes, including holding assets, conducting managing office activity, securing intellectual property real estate ownership.
Stability: A common law jurisdiction with English as the official language provides a familiar legal environment to numerous businesses and families globally.
Your entity formed under the Regulations could assist in structuring assets/ wealth in the following context:
Asset Holding: Owning and managing a diverse portfolio of assets.
Intellectual Property Management: Protecting and commercializing intellectual property rights.
Real Estate Investment: Holding and managing real estate properties.
Asset Protection: Segregating assets for risk mitigation.
Employee Incentive Plans: Implementing employee stock option plans.
This new offering is a clear indication of the DIFC’s continued efforts to respond to the ever-changing commercial landscape, the professional and business community pleas, as well as the family businesses’ aspirations. The flexibility the Regulations offer combined with the tailored features of the PCs and the Active Commercial Enterprises will no doubt support the journey of those who have chosen to form their vehicles in the Centre, allowing them to further optimize their operations and achieve their strategic goals.
A copy of the regulations can be accessed DIFC’s Legislative Database: here.
At Al Tamimi & Co we offer specialised services for clients who wish to establish or continue a Prescribed Company or the Active Enterprise, under the Commercial Package. We provide legal advice and support on various matters, including the qualifying requirements, the application process, the conduct of business, and the reporting and their ongoing disclosure obligations.
Our expert lawyers remain on hand to advise on and implement the tailored solutions. We are well poised to help our clients to achieve their business and investment goals by leveraging the advantages of these types of entities.
For further information,please contact Izabella Szadkowska and Noff Al Khafaji.
Published in September 2024
