A Special Purpose Vehicle (SPV) is a specialist type of holding company with passive functions that provide advantages for businesses and business owners in the United Arab Emirates.
AN SPV might be just what your business needs to separate assets, optimise your holding structure, and more. SPVs are a reliable and robust business framework to help take your company to the next level.
In this guide to SPVs, we’ll look at the following:
- What is a special purpose vehicle (SPV) in the UAE?
- Benefits of setting up a Special Purpose Vehicle (SPV)
- Use cases of a Special Purpose Vehicle (SPV)
- How to set up a SPV in ADGM
- Why choose Trade License Zone?
What is a special purpose vehicle (SPV) in the UAE?
A Special Purpose Vehicle (SPV) in the UAE is a passive holding company created to isolate financial and legal risk by ring-fencing certain assets and liabilities.
An SPV (also known as a Special Purpose Company or a Special Purpose Entity) is considered “bankruptcy-remote” because of its separate legal personality. It is created as a subsidiary, which is protected in case the parent company goes bankrupt and considered isolated in case the same happens in reverse to those legal entities.
These passive holding companies can finance operations and projects, securitise loans, manage asset transfer of asset holdings, and ring-fencing certain assets, such as intellectual property rights, to limit liability and isolate financial risk.
The commercial activities of Special Purpose Vehicles in the UAE can be completed through the Abu Dhabi Global Market (ADGM) or the Dubai International Financial Centre (DIFC).
Benefits of setting up a Special Purpose Vehicle (SPV)
Setting up Special Purpose Vehicles (SPV) in the UAE has numerous benefits.
SPVs offer business owners and asset holders greater freedom while allowing for the separation of financial and legal risk through this ownership structure.
The advantages of an SPV in UAE include the following:
- Registered companies can apply for a Tax Residency Certificate from the UAE’s Federal Tax Authority (FTA) to benefit from the UAE Double Tax Treaty network.
- Companies set up in other jurisdictions can relocate or redomicile to the ADGM.
- ADGM SPVs can use an agent/company service provider to manage the ADGM SPV and to provide the registered office address.
- ADGM SPVs don’t need their corporate documents attested to create this new business structure.
- There are a variety of legal structures within ADGM SPV classes, with multiple classes and a broad range available.
- Common Law jurisdiction applies to ADGM SPV entities, and they are regulated by independent ADGM courts, the Registration Authority, and Financial Services Regulatory Authority, giving them added business credibility, consistency, reliability, and a stable legal environment.
- ADGM SPVs offer a best-in-class risk-based independent regulatory framework for your SPV company structure.
- ADGM SPVs also attract added tax benefits, which include 0% direct tax, 0% withholding tax, no restriction on repatriation of capital, and no foreign exchange controls.
Use cases of a Special Purpose Vehicle (SPV)
There are seven primary use cases for SPVs in the UAE.
1) Securitisation:
SPV owners can use SPVs to securitise loans (or other receivables) by purchasing assets and issuing debt secured on them. This arrangement ensures that the holders of the asset-backed securities have the right to receive payments on the debt while limiting recourse to the owner of the assets.
2) Real Estate Investment:
SPVs can be used to acquire the title to real estate and properties and limit the recourse of mortgage lenders (depending on the location of the real estate in terms of jurisdiction). In some jurisdictions, the sale of SPV shares results in lower taxes and transaction fees than other asset transferral methods.
3) Financing:
ADGM SPVs can be used to ring-fence investments, which allow SPV shareholders financing without increasing debt for the parent company or exposing the parent company’s or SPV’s assets to cross-liabilities.
4) Asset Transfer:
An SPV can transfer assets (along with associated material agreements) that allow for the transfer of all or part of the ownership of the asset’s enterprise. This means that material agreements of the asset can be maintained to uphold its value.
5) Risk Sharing:
SPVs can be used to form project companies for joint ventures. This way, the ADGM recognises the agreed management responsibility while legally isolating joint ventures’ partners from risks associated with the joint venture’s operational manner.
6) Raising capital:
SPVs can be used to raise funds in certain situations outlined by the regulatory bodies. The creditworthiness of an SPV is determined by the available collateral the SPV owns, not the parent company’s credit rating.
7) Intellectual Property:
SPVs can be used to separate valuable Intellectual Property into a standalone ADGM SPV, permitting the SPV minimal liabilities that can be used to raise funds and enter into license agreements with third parties, such as other companies. Also, an SPV can be a valuable tool for managing products with a variety of Intellectual Property components.
How to set up a SPV in ADGM
There are four main steps to set up an SPV in ADGM.
Step 1: Create a Profile
The entire ADGM SPV application and payment process is a fully digital registration process and can be completed on the online registry solution’s ADGM portal. You will first need to create a profile and prepare the required documentation needed for the application process.
These are the main documents required:
- Articles of Association (AoA)
- Registered office address (copy or lease agreement)
- Resolution of Board of Directors or Shareholders Resolution
- Passport copy and information of each authorised signatory, director, shareholder, and beneficial owner
- Emirates ID for UAE national authorised signatory
- Certificate of Incorporation or Certificate of Registration for each director or shareholder that is a body corporate
Step 2: Complete the Application
Complete all required forms and apply with the documentation listed above. You will be required to make payment at this stage, too.
Step 3: Notification
If all information and documentation are correct, the application process will be completed in less than a week. The status of the application will be available on the online dashboard of the ADGM online registry portal, and you will be updated via email should any changes be required to your application. Upon the Registrar’s final decision, you will receive a notification via email that your ADGM SPV application is approved.
Step 4: Issuing of License
If your application is successful, you will receive a physical copy of your ADGM SPV license. You will also be provided with a link in the email, enabling you to set up an appointment to collect all original documentation.
Why choose Trade License Zone
Setting up your ADGM SPV might seem like a complicated process to navigate the different regulatory approaches. Fortunately, you can rely on the services and support of Trade License Zone’s experts.
Partnering with Trade License Zone will save you time and money – and you’ll have peace of mind that your SPV (and other legal business entities) comply with all necessary regulations to operate effectively and efficiently.
So, to take advantage of the ADGM SPV’s benefits (or any other legal business entity), contact Trade License Zone today.