Special Purpose Vehicle (SPV)
Special Purpose Vehicle Companies (SPVs) are developed to isolate financial and legal risks by guarding particular assets and liabilities. You can establish your SPV as a subsidiary, joint, or other venture vehicle to make sure that only those assets related to a transaction are exposed to the liabilities linked with the transactions. However, the claim by the creditors of the SPV cannot link to the assets of shareholders of the SPV.
There have been enhancing interests of foreign investors like you in the use of SPV in the United Arab Emirates (UAE). The financial free zone in the UAE i.e. Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) has played an essential role in attracting this interest.
SPV in ADGM is designed to be strong, flexible, simple, and efficient. However, you must demonstrate a reliable connection or nexus to the ADGM or UAE and the GCC region. If you have decided to start your SPV in the ADGM, you should contact the Flyingcolour Business Setup to get professional guidance to begin your business in UAE.
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Advantages of setting up your SPV in the ADGM
- Tax Residency: As an owner of an ADGM entity, you can apply for a tax residency certificate from the Federal Tax Authority (FTA) in the UAE to benefit from the UAE Double Tax Treaty network. However, you must meet the criteria set by the FTA to get the tax residency certificate. In addition, you can also enjoy no withholding tax or restriction on profits.
- Complete Foreign Ownership: ADGM entities, including Special Purpose Vehicles, are not subject to any minimum shareholding by the UAE nationals. Therefore, you can own 100% of your business.
- Asset Protection: As a separate legal entity, SPV provides you with a layer of protection for the assets of your parent company. Suppose a parent company meets a scenario of being bankrupt or legal action, the assets of that parent company are protected from any liabilities of the SPV.
- No Office Space Needed: Unlike other companies in the ADGM, an SPV does not need to acquire any physical office space. However, you must give a registered address on Al Maryah Island. However, this address can be the service of your appointed service provider, similar to the registered office requirement in other
jurisdictions. This freedom of no office space eliminates the significant cost of your business. - Legal and regulation: The direct applicability of common law ensures a high level of legal certainty and gives you comfort coming from a common law background. As an owner of an SPV, you will have access to ADGM’s sophisticated regime for the registration and enforcement of security interests, which is a critical factor in
choosing a jurisdiction to incorporate SPVs for the securitization transaction. - Migration of Existing Corporate Entity: It allows the relocation or redomicile of your company to ADGM from other jurisdictions. Suppose your company is incorporated outside the ADGM, you may apply for the certificate issuance confirming that it continues as the company registered within the ADGM Company regulations. However, your company must be authorized by the law of the jurisdiction under which your business is currently incorporated.
What can an ADGM SPV be used for?
SPV as a passive holding company
You are allowed to utilize SPV in the ADGM to hold investments in the United Arab Emirates (UAE). Investment can be in the type of shares in these underlying entities, warrants, convertibles, and notes. As an SPV owner, you can derive dividend income from these investments. In addition, you can derive capital gain when divested.
You should remember that SPV in the ADGM cannot be an operational holding company. It means that you cannot hire staff, own office space, or conduct any activities that can be construed as the active management of the underlying investment. If you want to access these benefits, you should set up an operational holding company in the ADGM, instead of SPV.
SPV as a securitization vehicle
You can use the SPV to securitize loans, in which you purchase these assets by issuing debt secured on these underlying assets. The ADGM lets you register pledges with the registration authority. These pledges must be cleared before any share transfer can be affected on the Special Purpose Vehicle in ADGM.
SPV as a holding real estate investment
You can also use the SPV to get title to real property and restrict the recourse of the mortgage lender depending on the location of your location. The sales of the SPV’s shares can lower taxes and transaction fees, as compared to transferring assets.
SPV in a Financial transaction
You can use SPV to ringfence specific investments as it permits finances without leading to an enhancement in the existing debt level for the parent company or exposing the assets of the parent company to cross liabilities.
SPV as Asset Transfer Vehicle
You can use the SPV in the ADGM to transfer assets together with the material agreement. However, you can trigger these transfers on certain milestones. In addition, these transfers can be incorporated into legacy-planning solutions for long-term asset transfer.
SPV for raising capital
You can use SPV in the ADGM to raise capital with creditworthiness by the collateral of the SPV, rather than credit rating of the parent company.
SPV for intellectual property holding
You can also use SPV in the ADGM to separate intellectual property into separate structures, which have the least liabilities. In addition, you can use the same to raise and enter into the license agreement with the third party.
SPV as a risk-sharing vehicle
If a joint venture, you can use SPV to create the specific project-based company. It would reflect agreed management responsibility while isolating joint venture partners like you associated with the joint venture.
Like SPV as a passive holding company, you cannot hire employees, have office space, or be seen as actively managing the arrangement. However, you are only allowed to conduct passive management of the SPV in this case.
Steps to start SPV in the ADGM
- Initially, you should consider the business activity that you need to conduct in your Special Purpose Vehicle (SPV) in the ADGM. However, the ADGM allows you to conduct several activities, like trading, financial, or professional service. So, you should only choose the business activity you want to perform in your Special Purpose Vehicle (SPV) company.
- After choosing business activities, you should choose the appropriate legal form for your SPV. However, you can select from a wide variety of legal forms, like LLC, branch office, and more. But LLC is the preferred legal form for a Special Purpose Vehicle (SPV).
- Next, you should register the unique name of your company with ADGM.
- After reserving a trade name, you should prepare the required documents. Consult Flyingolour Business Setup to know what documents you need to begin your Special Purpose Vehicle (SPV) in ADGM.
- After preparing your required documents, you should submit your application and documents to the relevant authority. In addition, you should submit the fees based on the legal form and business activity of your company.
- After your submitted documents and application are approved, you will obtain the trade license from the ADGM. Once getting the license, you can legally start your SPV in the ADGM.
Why choose us?
Starting your SPV in ADGM is an excellent way to isolate the financial and legal risks by protecting your assets. However, you can enjoy several benefits by establishing a Special Purpose Vehicle (SPV) in the ADGM but setting up an SPV requires proper planning and guidance. Flyingcolour Business Setup can help you start your ADGM SPV properly. Plus, our experts will provide the proper guidance for your business.
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