Establishing a Special Purpose Vehicle (SPV) Entity in the UAE

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This blog is a guide to starting a Special Purpose Vehicle (SPV) in the UAE. It describes the traits of this type of corporation and the conditions under which incorporating one into your business structure is acceptable. Additionally, it describes how to create an SPV, provides details on its regulations, and addresses related accounting and tax issues.

Introduction

A Special Purpose Vehicle (SPV) is a corporate structuring tool that allows an organization to transfer or isolate risk, secure financing, and meet other critical business goals. A tightly focused business goal or project is often the use case for an SPV.

The SPV is usually a subsidiary of the originating company and is a separate legal entity with its balance sheet. This subsidiary company is exempt from the financial dangers connected to its parent corporation. Due to the fact that it is a separate legal entity from the parent, its assets and liabilities are distinct from those of the parent.

Who should set up an SPV?

An SPV can be appropriate in many situations. Some of these are described below.

01. Startup Companies

• An SPV can provide the platform through which investors put money and receive equity in startup companies.
• Through an SPV, investors can create syndicates, through which a significant amount of money can be collected and invested in a startup.
• A startup can attract a larger number of investors willing to invest money in a project through an SPV.
• Through the same SPV, the startup will need to deal with only one company instead of a larger number of investors.

02. Risk Segregation

• SPV allows an investor to allocate money for just one specific project, thereby segregating its risk.
• In addition, if the company structures its SPV such that the SPV has assets to which investors have access, investors have the security that their investment is protected by some tangible collateral. Eventually, investors in a company may not be able to recover assets if the company becomes insolvent, because other stakeholders (for ex: employees or banks) may have a prior claim on those assets. However, investors who have contributed funds to a properly structured SPV may be able to claim the SPV’s assets even if the related company itself becomes insolvent. This additional protection may incentivise prospective investors and allow the SPV to obtain funds on better terms.

03. Reduction of Regulatory Burden

• By creating SPVs, onerous regulations can sometimes be avoided.
• By creating an SPV in the necessary jurisdiction, it may occasionally be possible to bypass laws that demand owners of particular assets be headquartered or registered there. Such an SPV can thus hold the necessary assets without forcing the parent to transfer all of its operations to that nation.

Key features of the SPV

• Highly competitive fees and transparency of pricing
• No restrictions on the number of shareholders
• Common law jurisdiction
• A variety of legal structures are available
• Independent regulatory framework
• Registered companies are permitted to apply for a tax residency certificate to benefit from the UAE double tax treaty network
• Shelf SPVs permitted

Steps for Creating an SPV

01. Assess whether an SPV is appropriate for your company’s structure.

• You are a startup business and need funding.
• Your investors are more likely to pool money and receive equity in a less risky manner.
• You want to use your SPV as an investment entity.
• You want to reduce financial risk for your parent company.
• You do not want to deal with numerous investors from your parent company.
• You want to protect your intellectual property rights.

• You wish to hold real estate property as assets under the SPV to save on taxes.

02. Incorporation of an SPV

• You can incorporate an SPV with the assistance of Flying Colour Business Setup Services, one of the oldest and best business setup consultants in the UAE.

03. Create a company constitution

• The company constitution is a document stating the company’s regulations, purpose, business structure, functions and specifics; thus, all information about the structure of your SPV should be listed clearly.

Preferred Jurisdiction to form an SPV in the UAE

1. Abu Dhabi Global Market (ADGM)
2. Dubai International Financial Centre (DIFC)
3. RAK International Corporate Centre (RAKICC)

Conclusion

The jurisdictions mentioned in this blog for establishing an SPV have different rules and regulations that vary from one another; if you need Flying Colour Business Setup Service LLC’s assistance in establishing an SPV, please schedule an appointment with our expert today.