The United Arab Emirates (UAE) has established itself as a global hub for business and investment. Thus it attracts entrepreneurs and companies from around the world. One popular business structure in the UAE is the holding company. Because it offers numerous advantages for individuals and businesses looking to expand their operations or consolidate their assets. In this comprehensive guide, we will explore everything you need to know about holding companies in the UAE. It will also include their definition, benefits, formation process, and key considerations.
Understanding Holding Companies
In a word, a holding company is a legitimate corporate entity whose principal function is to own and oversee other enterprises or assets. Its primary function is to hold shares or ownership stakes in subsidiary companies, often across diverse industries or sectors. Additionally, the holding company structure allows for centralized management, improved corporate governance, risk diversification, tax optimization, and asset protection.
Foreign investors are permitted to register holding corporations in a variety of ways under the Dubai Company Act. A Dubai holding company cannot, however, engage in commercial activities like service or product production. The holding company’s key benefit is that it gives its owner authority over other businesses.
Types of Holding Companies
The fact that a range of legal entities can be incorporated as holding companies is one of the biggest benefits of setting up a holding company in Dubai. In Dubai, holding businesses fall into two main categories:
- onshore holding company,
- free zone holding company.
A foreign investor needs a local partner who will control 51% of the company’s shares to create an onshore holding company. However, holding firms are permitted to have 100% foreign ownership in Dubai-free zones. You can use our company registration agents’ services if you require help forming a holding company in Dubai.
Without engaging in direct trade or commercial activities, the law permits your mainland holding company to carry out commercial and administrative operations. How? Through the subsidiary firms both domestically and internationally.
You can operate more freely in a free zone. It also provides several benefits like significant tax exemptions, no currency limits, and the option to repatriate 100% of your earnings and principal investment.
You must first select one of the numerous business-friendly free zones offered in the nation if you want to launch a free zone holding company in the United Arab Emirates. This includes the Sharjah Airport International Free Zone (SAIFZ), the Abu Dhabi Global Market (ADGM), the Jebel Ali Free Zone Authority (Jafza), the Dubai International Financial Centre (DIFC), and many others.
The UAE government has also declared that even after the new corporate tax regime takes effect in the UAE in 2023, businesses operating in free zones would continue to pay no corporate taxes.
How does Holding Company work?
Depending on its type, the holding company must have either a management board or directors, just like any other Dubai firm. The holding company’s rules must be established by the management of the company, who must also oversee its operations. Given that holding firms may establish subsidiaries in Dubai, management is also responsible for their oversight. The management must also guarantee the holding company has the funding it needs to function.
There are a few things to think about when it comes to their operation, regardless of whether they were founded in a Dubai-free zone or not. A holding corporation operates under the guiding premise that all of its assets are shielded from liability for the debts and obligations of its subsidiaries. To ensure the cash flow of its subsidiaries, the holding company will be in charge. Additionally, it must ensure the subsidiaries’ financial stability. It’s also crucial to remember that each company under the ownership of a holding company must maintain its assets and operations.
To the extent of its contribution to each firm, the holding company will be held liable for the debts and liabilities of its subsidiaries. For this reason, in Dubai, the holding company will often be a limited liability company.
If you’re thinking about establishing a holding company in Dubai, you may rely on our business registration services.
Benefits of Setting up a Holding Company in the UAE
Tax Efficiency:
One of the key advantages of establishing a holding company in the UAE is the favorable tax regime. The UAE does not impose corporate or personal income taxes on most business activities. Thus, it makes it an attractive jurisdiction for holding companies seeking tax optimization.
Asset Protection:
By segregating assets within a holding company structure, individuals and businesses can shield their assets from potential risks and liabilities associated with their operating companies. An additional layer of defense against legal challenges, bankruptcy, or creditors’ claims may be offered by this structure.
Diversification and Risk Management:
Holding companies allow entrepreneurs and investors to spread their risk across multiple industries or sectors. By holding stakes in diverse businesses, a holding company can mitigate the impact of market fluctuations and industry-specific risks.
Centralized Management and Governance:
With a holding company structure, decision-making and strategic planning can be, centralized, enabling better coordination and control over subsidiary companies. This centralized management approach can lead to improved corporate governance, streamlined operations, and enhanced efficiency.
Formation Process for Holding Companies in the UAE
Choose the Appropriate Jurisdiction:
The UAE consists of several jurisdictions, including mainland UAE and various free zones. Every jurisdiction has a unique set of laws and advantages. So it’s important to select the one that is best for your holding company depending on your goals, sector, and commercial operations.
Determine the Legal Structure:
The next step involves selecting the appropriate legal structure for your holding company. The common options include limited liability companies (LLCs), free zone companies, and offshore companies. Each structure has its requirements and implications so careful consideration is necessary.
Obtain Licenses and Permits:
Depending on the jurisdiction and business activities, you may need to obtain specific licenses and permits. Depending on the sector you work in, this can be a standard trade license, a professional license, or a specialized license.
Open Bank Accounts:
It’s critical to register a corporate bank account in the UAE to streamline business operations. Choose a reputable bank that offers suitable services, such as multicurrency accounts and online banking facilities.
Key Considerations and Compliance
Corporate Governance:
Comply with the UAE’s corporate governance requirements, including appointing directors and maintaining proper records and documentation. Finally, make sure that you adhere to best practices and international standards.
Legal and Accounting Support:
Seek professional assistance from legal and accounting experts well-versed in UAE laws and regulations. They can guide you through the complex processes, ensure compliance, and help with tax planning and financial reporting.
Economic Substance Regulations:
Be aware of the UAE’s economic substance regulations, which aim to ensure that companies conducting relevant activities in the UAE have an adequate level of economic presence. So, understanding and complying with these regulations is crucial to avoid penalties.
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The Bottom Line
Establishing a holding company in the UAE can provide significant advantages, such as tax efficiency, asset protection, risk diversification, and centralized management. In short, to negotiate the legal and financial complexities and take advantage of the opportunities presented by the UAE’s business-friendly climate, seek the advice of qualified professionals.
The free repatriation of income and the absence of corporate tax are just two of the tax benefits that the Dubai holding company will experience.
More details on the taxes structure in Dubai and its free zones are available through our local agents.