Entrepreneurs looking to establish themselves in the UAE have many options. Some choose to set up limited companies in the mainland or the equivalent in one of the country’s free zones. Others opt for partnerships or offshore set-ups.
But there’s another company type growing in popularity in the UAE, too – the Special Purpose Vehicle (SPV). Allowing for greater freedom than many other company types, SPVs offer flexibility and security for those wishing to hold assets in the UAE.
In this article, we’ll explore the benefits and common uses of SPVs to help you determine whether they are the best corporate entity for your operation.
What is a Special Purpose Vehicle (SPV)?
In short, an SVP is a passive holding company, sometimes known as a Special Purpose Company or a Special Purpose Entity. In the UAE, the activities of these entities are completed within the Abu Dhabi Global Market (ADGM), RAK International Corporate Centre (RAK ICC) or the Dubai International Financial Centre (DIFC).
An SPV is a separate legal entity created to fulfil a temporary business purpose or undertake a limited and specific business activity. As certain assets and liabilities can be ringfenced, SPVs are considered bankruptcy-resistant, deemed by authorities as isolated if the parent firm becomes insolvent.
With an entirely separate legal status, assets, and liability structure, SPVs also maintain a separate balance sheet from that of the parent company.
While they have many potential uses, for the most part, they are used to fund, purchase, and sell stock held on the off-balance sheet to limit responsibility and isolate financial risk. SPVs can also finance operations and act as security collateral for corporate loans.
Common uses of SPVs in business and finance
Proving they are maintained within agreed limitations, SPVs can have numerous uses. They are most commonly used for the following:
Real estate investment
SPVs can purchase and hold deeds for property investments and portfolio management. Depending on the jurisdiction of the property, real estate held in an SPV may be resistant to action from mortgage lenders in the case of foreclosure or bankruptcy of any other associated entities.
Securitisation
SPVs can be used to securitise loans by issuing debt secured on the assets it owns. The holders of the asset-backed securities are then able to receive payments against the debt without exposing the owner of the assets to the associated risk.
Capital raising
SPVs can raise capital independent of any parent company. In other words, the creditworthiness of the SPV is considered when raising funds, determined by the assets and collateral it holds, rather than the parent company’s balance sheet or credit rating.
Intellectual property management
One widespread use of SPVs is IP holding and management. As well as allowing valuable IP to be held in a standalone, bankruptcy-resilient entity, this enables the SPV to form licensing agreements and raise funds independently of the parent company.
Spreading risk
SPVs are permitted to enter into joint ventures, helping to protect partners from the risk levels usually associated with this type of legal set-up.
Regulatory optimisation
Incorporating an SPV in a jurisdiction with a favourable regulatory framework can help to navigate complex rules and regulations in other territories. In essence, the SPV can hold specific assets without the parent company having to complete a full operational transfer.
How to set up an SPV in the UAE: Step-by-step
When you work with Creative Zone, we’ll help you establish an SPV in the UAE in five simple steps.
Step 1: Due diligence and eligibility checks
Before submitting any application, the team at Creative Zone will assess your circumstances to be sure that an SPV is the right vehicle for your operation. This process helps to ensure a smooth process and eradicate delays or possible rejection of your application.
Step 2: Choose a jurisdiction
There are several jurisdictions in the UAE that can incorporate SPVs. These are ADGM, DIFC and RAK ICC. The team at Creative Zone will advise on the best authority for your activities and needs.
Step 3: Submit your application
Once you have chosen a jurisdiction, it is time to submit your application to the relevant authorities. In most cases, you should receive a response within ten working days.
Step 4: Respond to enquiries
In some cases, your jurisdiction may come back to you to request further information or clarification. Once again, the team at Creative Zone is on hand to assist you with your response.
Step 5: SPV approval
You will usually receive confirmation of the establishment of your SPV within five to seven working days of your response. Once approved, your SPV is fully formed and ready to conduct permitted activities.
Five advantages of using an SPV in the UAE
Risk isolation
SPVs can shield holders and parent companies from the risk associated with particular projects and investments, protecting the core business from any liability.
Flexible investments
SPVs are suitable for a wide range of investments, with greater freedom than traditional company types. With an SPV, you can raise capital, finance projects and generate new opportunities outside the parent company.
Investor protection
Holdings inside an SPV give investors additional security, affording them access to a pool of bankrupt-resistant assets for use as collateral.
Tax efficiency
With an SPV, registered companies can apply for a Tax Residency Certificate and take advantage of the UAE’s many double tax treaties. SPVs can also benefit from 0% direct and withholding taxes and zero restrictions on capital repatriation and foreign exchange.
Simplified administration
As largely passive entities, SPVs are usually structured with a streamlined management framework requiring very little ongoing maintenance.
Why Work with Creative Zone?
Business uncertainty is often unavoidable. But with Special Purpose Vehicles, Creative Zone can help you effectively manage any risks associated with your assets, activities and investments.
We have a long and successful history of helping investors realise the enormous benefits of doing business in the UAE and beyond. Our dedicated team are well-versed in the country’s business and real estate markets, its company incorporation processes and the complexities of the tax and immigration systems.
Your dedicated Creative Zone team member is ready to respond and assist with your requirements at every step of the way. No matter your chosen investment or company type, we’re on hand with support, guidance and expertise. So, if you’re looking to start a new venture in the UAE or relocate from another jurisdiction, Creative Zone is your ideal starting point.
Get in touch today to set up your SPV company in the UAE.
