If you are considering Dubai as your business destination, did you know that you can establish your own Holding Company in UAE? A holding company lets you enjoy several advantages, such as the protection of assets, tax efficiency, limited liability, and much more.
Fortunately, opening your holding company in Dubai is relatively easy and does not require investing a hefty amount of capital. In this article, we will explain in detail what a holding company is and how it works in the UAE, the benefits of having a holding company in UAE, the types of companies allowed, the prerequisites to open a holding company, the costs involved, and much more.
A holding company is a legal entity that owns other companies’ assets and/or shares. It does not engage in any business activity itself, but it holds its subsidiaries to manage them. It also protects its shareholders from liability issues by isolating their assets from the liabilities of its subsidiaries.
Like many other business formats, holding companies are also popular in the UAE for foreign and local investors and entrepreneurs. It is desirable for those who want to consolidate their corporate investments into one entity and enjoy ownership benefits.
We will now explore how the holding companies in the UAE operate in the UAE.
Holding companies in Dubai and elsewhere in the UAE work within the country’s business framework. Holding companies can own shares of other companies but cannot be involved in a commercial activity like trading, manufacturing products, or providing customer services.
There is no specific paid-up capital requirement for you to form and own a holding company in UAE, which simplifies the company formation process and reduces entry barriers in the market. You can own a holding company with as little as $1 as a minimum capital.
A holding company in the UAE can own and manage shares of other companies in any business sector. The holding company or parent company can also own both physical and intellectual assets of the subsidiaries under its management and ownership. However, the parent company cannot undertake direct business activities except for some level of managerial control over its subsidiaries.
There are two major holding company types you can establish in the UAE.
Your first option is establishing an onshore or mainland holding company. The UAE law requires registering any holding company as a commercial business or activity. UAE’s Ministry of Economy (MoE) is the regulatory body for such establishments, and you must adhere to the UAE’s Companies’ Legislations.
The legislation allows your mainland holding company to conduct commercial and administrative activities through the subsidiary companies within the UAE and abroad without engaging in direct trading or commercial activities.
The other option is to open a free zone Holding Company. The UAE government has established over 60 economic free zones across the major Emirates of UAE, including Dubai, Abu Dhabi, and Sharjah, to facilitate foreign investment and commerce.
A free zone allows you to operate with greater flexibility and offers several incentives, such as generous tax exemptions, no currency restrictions, and the ability to repatriate 100% of your profits and principal investment.
To start a Free Zone Holding Company in UAE, you must first choose from one of the many business-friendly free zones available in the country. This includes Dubai International Financial Centre (DIFC), Jebel Ali Free Zone Authority (Jafza), Abu Dhabi Global Market (ADGM), Sharjah Airport International Free Zone (SAIFZ), and many others.
The UAE government has also announced that the free zone businesses will continue to enjoy zero corporate taxation even after UAE’s new corporate tax regime comes into effect in 2023.
Creating a holding company in Dubai and other parts of the UAE has several advantages. Here are some of them:
One of the most significant advantages is that your assets are protected from legal action against your business. If something happens to your business, your assets that belong to other subsidiary companies will remain secure. Even if a subsidiary gets into financial trouble, the remaining subsidiary companies will stay safe from liquidation measures or regulatory oversight.
A holding company in the UAE will benefit from tax savings since income earned by foreign companies is not yet taxable in the UAE. Moreover, you can also benefit from double tax treaties with more than 80 countries across Europe, Asia, and Latin America.
You will find it easier to establish credit with banks, creditors, and other organisations, as the lenders will consider the financial strength of the subsidiaries managed by the parent company. Interestingly, you can acquire a loan for your holding company and invest it in other assets.
- Governmental support in the UAE: The UAE government provides businesses with a supportive and friendly environment. Moreover, they offer several incentives to foreign investors through tax exemptions, trade privileges, and more.
- No minimum share capital requirement: To encourage foreign and local investment, the UAE government does not impose a minimum amount of paid-up share capital you must invest. This makes the entire business registration and formation process easy and affordable for many investors.
- Different company structures: You can form a holding company through various corporate structures depending on your investment, preference, and business type. Your company can take any one of the following formations:
- Partnership business
- Limited liability company or LLC
- Joint stock company
- Free zone business
- Greater privacy: The UAE legal and regulatory authorities do not require you to disclose complete operational details of the subsidiaries frequently as long as you comply with all legal requirements. So, you will enjoy a greater level of privacy compared to owning any of the subsidiaries directly.
There are also some prerequisites that you must fulfill when applying for a holding company. We will now go over those.
The UAE government has set up a range of rules and regulations for a holding company. The holding company must appoint a management board with multiple authorised persons who will make managerial and top-level decisions on how the subsidiaries will run. Below are some of the essential responsibilities of the management board:
- Continuous supervision: The management must establish a formal procedure to supervise the subsidiary companies’ business activities continuously.
- Appointment of director: The board must appoint a director who will represent the management board to coordinate with the subsidiary companies. The director will also supervise the day-to-day business activities conducted by the subsidiaries to ensure legal and operational compliance.
- Capital requirement: Although regulatory bodies have not set a specific paid-up share capital for the holding company, you must ensure that all the subsidiaries have adequate capital available to run their operations.
- Risk management: It is also the responsibility of the holding company’s management board to make strategic decisions about risk management and risk exposure of the subsidiaries. They can do it by setting up a loan limit or debt-to-equity ratio. The board can also decide on other risk exposures like industry or currency risk.
- Contact management: The board must ensure that all of its subsidiaries honour the contracts and agreements with suppliers, vendors, and other stakeholders.
- Separation of the subsidiaries: As a holding company, your business can hold one or more than one business. However, if you own more than one subsidiary, you must keep all entities’ assets and responsibilities separate. The separation will also protect you during legal disputes or liquidation if the business condition goes downhill.
We will run through establishing and registering your holding company in the UAE.
Before you form your UAE holding company, there are certain important steps that you should take. These include:
- Choosing the right business activity for your holding company
- Obtaining approvals from relevant departments and authorities
- Obtaining a trade licence from the relevant authority of the Emirate or free zone authority depending on where you want to establish your business.
- For example, if you want to base your holding company in Dubai, The Department of Economy & Tourism in Dubai (DED) is the licensing authority.
- To form a similar business in Abu Dhabi, you must obtain a licence from the Abu Dhabi Department of Economic Development (ADDED).
- Registering with the Ministry of Economy (MOE) or free zone authority
- Opening a corporate bank account in UAE
- Applying for visas, if required
Now let’s look at the steps in detail.
Once you decide to establish your UAE-based holding company, one of the primary matters you must decide on is the business structure; your documentation requirements will depend on your company formation structure.
When choosing the most appropriate company formation structure, always carefully evaluate the pros and cons. For example, forming an LLC or limited liability company in Dubai will protect your external assets that are not part of your business.
DED, the regulatory body for any commercial licence in Dubai, has outlined the documentation requirement for any new businesses, including holding companies. Depending on your business structure, you may need a few of the following documents:
- Filled up business registration and licensing form
- Identification documents for the owner and all the partners
- Copy of valid residence permit in Dubai
- No objection certificate for the non-GCC nationals to participate in a commercial activity
- No objection certificate from a free zone (if you are applying for a free zone holding company)
- Parent company’s board resolution if the holding company intends to act a branch
- Copy of parent company’s incorporation documents (applicable for branch establishments)
After finalising your business structure and arranging the relevant documents, you must choose a commercial name for your holding business entity. The UAE business incorporation legislation requires you to choose a different name for your holding company that does not resemble any of the subsidiary’s names. The distinction will help keep the parent company and the substitutes separate.
You can choose a commercial name from DED’s Invest in Dubai website, where you can enter various business names and check for availability.
After choosing a trading name, you can apply for your commercial licence from DED for your planned holding company in Dubai. Here, you will have to first apply for initial approval. You can use the initial approval certificate to rent an office space or apply for permissions from other relevant authorities if applicable.
Finally, you can submit the initial approval, tenancy agreement, and other relevant documents to DED to apply for the full licence for your holding company.
Free zones, on the other hand, have their licensing process. If you want to start your holding company from one of the UAE’s free zones, you must obtain approval from the preferred free zone ahead of your licence application.
Some of the costs associated with your holding company formation in UAE include:
- Initial approval: AED 120
- Trade name registration: AED 600
- Licence application: AED 600
- Business Center Fees: AED 25,000 (if applicable)
In addition, you will also have to pay the free zone fees, which differ based on the free zone you choose. Ideally, free zone licensing fees start from AED 15,000.
The above costs do not include business consultation and various administrative costs like drafting the Memorandum of Association that might incur during the process. A holding company formation may cost you approximately AED 20,000 or more, including rental, administrative, and consultation costs.
A holding company in the UAE is a great way to manage and protect your assets. It also offers many benefits such as tax efficiency, lower risks, no specific share capital requirement, greater flexibility, and greater diversification of the subsidiary companies.
Although the process is straightforward, you must prepare all documentation and complete the paperwork correctly for a streamlined experience. Virtuzone’s industry-leading business consultants have significant expertise in business formation in Dubai and the UAE. Reach out to us today to make things easy for you and get started with your holding company in UAE.