Establishing an SPV in the ADGM

  • 20-12-2018
The Abu Dhabi Global Market (ADGM) is an international financial centre located in the Emirate of Abu Dhabi, United Arab Emirates. The ADGM has developed a reputation as an innovative financial district, and has established many first's in it six-year history. The FinTech Abu Dhabi summit has become a must-attend event, and together with incubators such as HUB-71, ADGM has made it's mark as a leading fintech centre in the region. 

Another such market-leading initiative is the Special Purpose Vehicles (SPV) regime. The SPV regime is open to a wide variety of uses, from investor-friendly holding structures, to asset separation and transfer. The SPV regime has proved to be very successful, with over 2,000 companies currently registered with the centre. 

Update:

The ADGM Company Service Provider Regulations came into effect from 12th July 2021. 

All ADGM Special Purpose Vehicles* are now required to appoint a Company Service Provider to carry out company secretarial and registered agent services. The ADGM CSP will be the point of contact between the ADGM Registration Authority and the SPV. 

10 Leaves is a Company Service Provider in the ADGM and offers the following services to ADGM SPVs:

  • Incorporation Agent – assistance in setting up the SPV.
  • Registered address – providing the registered office. 
  • Provision of directors.
  • Provision of company secretaries.
  • Provision of Authorised Signatories.
  • Provision of nominee shareholders. 
  • Provision of accounting services.
  • Customisation of the Articles of Association. 
  • ESR Filings and notifications.
  • Pledge Arrangements and registration.
  • Translations and attestations.
  • Strike-off and voluntary liquidation assistance

In addition to the above, we offer corporate and commercial services through 10 Leaves Legability. These include shareholding agreements, IP agreements, Share vesting plans and agreements and ESOPs.

For startups, we offer structuring solutions, including issuance of warrants, SAFE notes, convertibles and maintenance of cap tables. 

We provide all our services through a proprietary digital frontend, with a secure digital backend, to ensure that you have a seamless experience, unmatched by competition. As a client, you also have access to our industry-leading media solution that incorporates engaging videos, detailed podcasts and informative publications to keep you updated and informed of the latest developments that affect your company on an ongoing basis. 

*some SPVs are exempt, such as entities connected to regulated firms, and those that they are able to demonstrate adequate presence in the UAE

What is an SPV?

SPVs are usually established to isolate financial and legal risk by ring-fencing assets and liabilities. SPVs can be established as subsidiaries, project or joint venture vehicles to ensure that only those assets related to a transaction are exposed to the liabilities associated with that transaction. Claims by the SPV’s creditors cannot attach to the assets of the shareholders of the SPV.

Features of an ADGM SPV:

An ADGM SPV offers multiple classes of shares, a first for the region. Coupled with an option to completely customise the Memorandum, the ADGM SPV provides a viable option for a range of holding and investment structures.

Other salient features include:

  • No attestations for corporate documents.
  • Shelf SPVs permitted.
  • No restrictions on nationality of ownership.
  • Minimum requirement of just 1 shareholder and 1 director.
  • No minimum share capital.
  • No maximum number of shares.
Click here to read more about ADGM SPV regulations.
 
What are the advantages of using an ADGM SPV?
 
Setting up an SPV in the ADGM offers many advantages, such as:
  • common law of England and Wales is directly applicable on civil and commercial matters
  • access to independent and English-based ADGM Courts
  • best-in-class independent regulatory framework based on world-class international regulations
  • access to the UAE Double Tax Treaty network with over 50 countries
  • fast and efficient formation process
  • no restrictions on number of shareholders
  • no physical office requirements
  • no attestations required for corporate documents
  • 0% tax
  • no restrictions on repatriation of capital or profits.

What can an ADGM SPV be used for?

The typical uses of an SPV include:

Passive Holding Company:

An ADGM SPV can be used to hold investments in companies in the United Arab Emirates, Saudi Arabia and any other country in the world. These can be in the form of shares in these underlying entities, conevrtibles, warrants and notes as well. The SPV can derive dividend income from these investments, and also capital gains when divested.

However, it should be noted that ADGM SPVs cannot act as operational holding companies, which means it cannot have employees, office space (other than what is provided by the Company Service Provider sush as 10 Leaves), and generally conduct any activities that can be construed as active management of the underlying investments. In that case, it is recommended to set up an operational holding company in the ADGM. 

Securitisation:

Can be used by an originating party to securitise loans (or other receivables) by creating an SPV which purchases these assets by issuing debt, secured on these underlying assets. The ADGM allows to register pledges with the Registration Authority, and these pledges will have to be cleared before any share transfers can be affected on the SPV. Do get in touch should you require more information on how to register a pledge with the ADGM. 

Real Estate Investments:

Can be used to acquire title to real property and limit recourse of mortgage lenders depending on the location of the asset. In some jurisdictions the sale of the SPV’s shares can result in lower taxes and transaction fees when compared to transferring the asset. Click here to read about how you can structure real estate investments through an SPV in the ADGM.

Financing:

Can be used to ring-fence certain investments, permitting financing without leading to an increase in existing debt levels for the parent firm or exposing the parent’s assets (or SPV’s assets) to cross-liabilities.

Asset Transfer:

Can be used to transfer assets in conjunction with material agreements. These transfers can be triggered on specific milestones, and also be incorporated into legacy-planning solutions for long-term asset transfers. 

 Risk Sharing:

In cases of joint ventures, can be used to form specific project-based companies. This would reflect agreed management responsibility while legally isolating joint venture partners from risks associated with the joint venture.

Again, in these cases, only passive management of the SPV is allowed, which means that the SPV structures as a joint venture cannot have employees, office space or be seen in general as actively managing the arrangement. 

Raising Capital:

Can be used to raise capital, with credit worthiness determined by the collateral of the SPV, rather than the credit rating of the parent firm.

Intellectual Property:

Can be used to separate Intellectual Property into a separate structure, which has minimal liabilities and can be used to raise funds and enter into license agreements with third parties. Here is an article that has details on how you can hold intellectual property using an SPV in the ADGM.

Legal Structure:

The following main options are available:

1. Private Company Limited by Shares – LTD

A standard private company limited by shares. This is the most common form of registration, and is similar to a UK Limited Company. In fact, the ADGM Companies Regulations are based on UK Companies Regulations, thus leading to more familiarity. 

2. Restricted Scope Company – RSC

This offers limited information disclosure on the public register; however, full disclosures would have to be made to the Registrar. To account for the fact that this less stringent approach could prejudice shareholders and creditors, RSCs may only be incorporated as a subsidiary of a public company, or as a family office.

Tax Residency:

ADGM SPVs can be eligible to apply for a Tax Residency Certificate from the Ministry of Finance to avail the UAE’s Double Tax Treaty network. The SPV may need to fulfil certain additional criteria. 

Economic Substance:
 
The UAE Ministry of Finance released the Economic Substance Rules in April 2019. Consequently, the ADGM, like other free zones, listed additional requirements for the structures offered, including ADGM SPVs. The two main criteria are:
 
The SPV can only act as a passive holding company, invest in downstream entities and enjoy dividends and royalties. It cannot carry out any trade or service, and hence cannot issue invoices or have clients.
 
The SPV will have to demonstrate basic substance within the UAE. Two mandatory requirements are:
 
a) the authorised signatory will have to be a GCC-resident; and
 
b) the SPV will have to hold some assets within the UAE. This can be in the form of shares in an underlying UAE-based free zone entity. 
 
These criteria have to be met in order to get authorised. The underlying assets have to be identified, and an undertaking signed that confirms the execution of the stated transaction within 6 months of licensing. 
 
 In case of GCC-based transactions, this requirement (b) is waived. The SPV will not have to prove additional UAE-based substance in case one of the authorised signatories is a GCC-resident, and the investment is made in the GCC.
 
We are able to provide nominee authorised signatory services for other applicants, who do not have an authorised signatory. Do get in touch for a quote!
 
KYC requirements for ADGM SPVs
 
The ADGM is a well-regulated transparent jurisdiction. All SPVs are listed on a public register and details of shareholders, directors, authorised signatories and secretaries are accessible to the general public. Nominee arrangements are permissible, and 10 Leaves can act as nominee shareholder, director or authorised signatories. Do note that Ultimate Beneficial Owners would have to be declared to the ADGM Registrar. 
 
KYC documents required for the formation include passport copies, Emirates IDs/visas for authorised signatories, proof of residence and other standard due diligence documents. Enhanced due diligence may be required in some instances. All documents submitted to the ADGM will have to be certified true copies of originals. 
 

Office space requirement:

SPVs are not required to have dedicated physical office spaces; however, they would need to maintain a registered address in the centre. The ADGM allows for the use of the offices of ADGM-based service providers, for this purpose.  We provide registered agent services in the ADGM, and would be happy to give you a quote on the various services that we offer, including company secretarial  servicesGet in touch with us for a quote.

Costs:

The fee payable to the Registrar in the first year is US$ 1,700. The recurring annual fee is US$ 1,200 in subsequent years.

This doesn’t include other fees such as registered address and company service provider fees. Get in touch with us for a quote.

 

Bottomline:

The SPV regime in the ADGM is well structured, flexible and very cost-effective. Offering an onshore holding structure, based in a well-regarded jurisdiction, will provide comfort to regional investors, as well as others who wish to conduct business or hold investments in the greater MENA area.

 

Get In Touch With Us
 
 
 

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