UAE STRUCTURING SERIES (I)
FROM GOOD TO GREAT:
THE CONSTANT EVOLUTION OF UAE’S STRUCTURING ENVIRONMENT
Over the past few years, the United Arab Emirates (“UAE”) has proactively positioned itself not only as a competitive –
and tax-free – place to do business, but as an increasingly versatile and sophisticated structuring hub, with a regulatory
framework to match. The present article – the first of a thematic “UAE Structuring” series – highlights some of the most
relevant domestic regulatory updates in the structuring field.
The 2015 CCL as a starting point
The Commercial Companies Law (Federal Law No. (2)
of 2015 – the “New CCL“) was totally revamped in July
2015, implementing international corporate governance
standards and increased shareholder protection. It brought
about a few key changes: among others, new tools – e.g. the
recognition of holding companies, the introduction of single
shareholder limited liability companies (“LLCs”; See also
case study) and a formal procedure for pledging of shares.
It also clarified and increased the duties of directors – e.g.
the obligation for directors to declare all conflict of interest.
Modernization of Free Zone regulations
Many free zones embraced the same trend in modernizing
their existing regulations or issuing new ones.
In Abu Dhabi. Abu Dhabi Global Market (“ADGM”) positioned
itself as a true alternative (and rival) to the Dubai
International Financial Centre (“DIFC”), sharing features
such as a common law regulatory framework (including, for
financial institutions, regulations and standards on par with
UK’s FCA), independent common law courts and a robust
insolvency regime.
One of ADGM’s USP is the vast array of legal vehicles
available in the center: company limited by shares or by
guarantee, or unlimited; restricted-scope company (RSC);
special purpose vehicle (“SPV”), protected cell company,
limited partnership; limited liability partnerships.
ADGM SPV regime is particularly interesting: cheaper
and more versatile than DIFC SPCs (see below) and more
credible than other domestic IBC regimes (e.g. JAFZA, RAK
ICC), ADGM SPVs have become the go-to option for regional
structuring, and an efficient high-credibility alternative to
traditional jurisdiction like Cayman or the Channel Islands.
Down the road in Dubai, the DIFC has been allowing
the registration of special purpose companies (“SPCs”)
as private companies limited by shares for some time
now. Primarily designed to carry out structured finance
transactions, their use has so far remained somewhat
confidential.
With the aim of complementing the aforementioned
SPC regime, the center launched an SPV of its own – the
Intermediate Special Purpose Vehicle – in September
2016. The Intermediate SPV may not be acting as a
primary holding company nor as the operating entity.
The application for such vehicle is only open to owners of
existing DIFC companies who may use the latter’s address
instead of acquiring an additional office space. Application
requirements for a SPV are lighter than those applicable to
standard DIFC entities.
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Other Dubai free zones also enacted new regulatory
frameworks. Dubai Creative Clusters (“DCC”) Authority
issued a new commercial regulation. While not representing
a ma jor departure from the previous regime, it illustrates
the DCCA’s will to adopt companies’ regulations in line with
international best practices.
Some of the key features include:
•• a new register of security promoting transparency in
share pledge process;
•• enhanced corporate governance requirements (e.g.
anyone acting on behalf of a company shall be duly and
expressly empowered);
•• extended duties on directors and officers to act in good
faith imposed;
•• corporate continuation of incorporation into and out of
the DCC; and
•• introduction of new forms of companies.
•• DCC registered companies must amend their Mem &
Arts and corporate governance policies by 31st January
2018 to comply with the new provisions.
In neighboring Jebel Ali free zone (“JAFZ”), the Jebel Ali
Free Zone Companies Implementing Regulations 2016
(the “JAFZ Regulations") came into force in 24 August
2016 replacing the Free Zone Establishment Implementing
Regulations No.1 of 1992 and the Free Zone Company
Implementing Regulations No. 1 of 1999.
It now recognizes Public Listed Company alongside the
previously existing free zone establishment (“FZE”), free
zone company (“FZCO”) and branch of existing company.
More relevantly, it allows for all structures to convert into
one another. The Regulations also introduced a corporate
migration regime, enabling foreign companies to continue
their existence as a FZE or FZCO within JAFZ.
Other welcome additions are the introduction of different
classes of shares and enhanced flexibility in the choice of
minimal share capital.
In Ras Al Khaimah, the registries of RAK Investment Authority
(“RAKIA”) and RAK Free Trade Zone Authority (“RAK FTZ”)
were consolidated into the Ras Al Khaimah International
Corporate Centre (“RAK ICC”) and a new regulatory
framework implemented to align with international
standards in the offshore company formation industry.
Key highlights include the recognition of corporate migration
and the introduction of wider variety of sophisticated
offshore business vehicles – e.g. company limited by shares,
company limited by guarantee, SPVs, segregated portfolio
company and unlimited company.
 UAE STRUCTURING SERIES (I)
FROM GOOD TO GREAT:
THE CONSTANT EVOLUTION OF UAE’S STRUCTURING ENVIRONMENT
Case Study: Potential combined use of two recently Stakes in UAE mainland entities are often held through foreign
introduced tools ADGM SPV and sole shareholder LLC registered SPVs. While traditional offshore centers like the BVI,
Cayman Islands or Channel Islands have advantages – e.g. robust
Foreign shareholding into UAE mainland LLCs is limited to 49%,
common law framework, substantial track record – they are not
versus 51% for the mandatory UAE shareholder.
without downsides – e.g. delay in implementation of decisions
Sharia law compliant tailor-made mechanisms can nonetheless (even if the SPV is effectively managed in the UAE), important
mitigate – to the point of elimination – all risks associated with costs related to legalization/super-legalisation of documents.
having a local partner in the local structure by structuring the
What is new?
relationship between foreign investor and UAE shareholder in a
way where the foreign investor retains full control over manage- By combining a sole shareholder LLC and an ADGM SPV, the
ment and profits. For more information on how the aggregate of shareholding is “lifted” from UAE mainland to ADGM – thus from a
all the “risk mitigation mechanisms” addresses the risk related civil law to a common law framework.
to the Local Partner mandatorily holding 51% of the shares into
The mandatory ultimate local ownership of 51% into the under-
the local company.
lying LLC is maintained, in compliance with federal law.
Risk Mitigation package

What improves?
Local
••
Foreign
Investor Partner split between operational vehicle and holding structure
•• shareholders’ relationship fenced within a common law
48% 52% framework;
••
ADGM
Common Law increased investor protection
ADGM
Framework
SPV
•• access to a sophisticated regulatory regime and corporate
1%
tools
99% •• less red tape: local notary public are no more involved for
transfer of shares
•• faster implementation of decisions (single jurisdiction)
Sole LLC
•• important savings (no legalization/super-legalisation of
documents unlike where a foreign holding co - e.g. BVI,
Seychelles or Mauritius - is used)

Take-away

Through the constant adjustment of its legal and regulatory framework and the introduction of new corporate tools,
the UAE is proactively adapting to the altering shifts in international business practices.
These initiatives reinforce the jurisdiction’s status as one of the most versatile and sophisticated structuring hubs
worldwide.

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