ADGM SPV vs JAFZA offshores – Which structure is ideal for Dubai property registrations?

  • 08-04-2019

It’s official. The Dubai Land Department now allows Special Purpose Vehicles in the Abu Dhabi Global Market to hold freehold properties in Dubai. While this facility was already available for Abu-Dhabi based properties, allowing for Dubai-based properties to be registered under ADGM SPVs is a landmark decision, bound to spearhead structured real-estate investments in the UAE.

JAFZA Offshore companies:

Until recently, the Dubai Land Department only allowed corporate ownership of Dubai freehold properties, if the said corporate was a JAFZA Offshore company (or more recently, an entity established in the DIFC). So, what’s the difference between this, and an ADGM SPV? Read on.

Applicable Law:

A big difference is the law applicable in these jurisdictions. While JAFZA offshores are subject to the laws of the U.A.E., ADGM SPVs come under Common Law(the ADGM being a Common Law jurisdiction). A big plus, especially considering the fact that a majority of investors in Dubai real estate are expatriates from multiple jurisdictions. Common Law applicability brings with it the comfort of familiarity and precedence. The presence of the ADGM Courts add an additional level of robustness.

Advantage : ADGM SPVs.

Flexibility:

The Memorandum of Association of a JAFZA Offshore company, while being comprehensive, doesn’t allow for easy customisations. The recently issued JAFZA Offshore Companies Regulations 2018 allow for some modifications (subject to approvals), however, the exact enforcement date of the new regulations is yet to be announced. It also remains to be seen how long the approvals for these customisations will take when applications are submitted.

The ADGM SPV, on the other hand, allows completely bespoke MOAs, with a condition that the provisions have to be in line with the ADGM Companies Regulations. In short – highly flexible.

Advantage : ADGM SPVs.

Transparency:

JAFZA Offshore companies are essentially opaque structures, with no public registers and names and details of shareholders and directors are not in the public domain.

On the other hand, transparency is a key feature of ADGM SPVs, with a public register in place, where searches by company or by individual names bring up all relevant details, including registered addresses. Pretty much like U.K. Limited companies.

Advantage : Depends on which side of the fence you are on!

Multiple classes of shares:

ADGM Companies Regulations allow for different classes of shares, with varying rights and distributions. This feature, in itself, makes the ADGM SPV arguably the best corporate structure of its kind in the GCC. Ideal for structuring holding companies and investment companies.

JAFZA currently has a single-class shareholding structure. As per the new JAFZA Regulations, a JAFZA Offshore company may, subject to the approvals of the Registrar, create different classes of shares, by providing the different classes of shares in its articles of association.

BIG Advantage : ADGM SPVs.

Shareholding and Directorships:

Both JAFZA Offshores and ADGM SPVs have no minimum stated capital. Shareholders can be individual, or corporate, or a mix of both. A minimum of one shareholder is required.

JAFZA Offshore Regulations currently mandate a minimum of two directors (a good practice), with no corporate directorships allowed. The new Regulations allow for corporate directorships and nominee Directors, subject to approvals.

ADGM SPVs allow for corporate directorships, with a minimum of one director required.

While a company secretary is not mandatory in the case of ADGM SPVs (unlike a JAFZA Offshore company), corporate secretaries are permissible (not allowed in the case of JAFZA offshores).

Advantage : ADGM SPVs.

Activities:

Technically, a JAFZA Offshore company can engage in trading activities outside the U.A.E. While consultancy is not allowed (as per the list of prohibited activities), some entities also engage in some kind of service activities and receive commissions. This can be done with the same company that also holds properties in its name.

An ADGM SPV, on the other hand, can only act as a passive holding company, i.e., not engage in trade or service of any kind.

Advantage : JAFZA Offshores.

Tax Residency:

JAFZA Offshore companies are essentially offshore structures, pretty much like the BVIs and the Caymans of this world. They cannot conduct any business within the U.A.E., but can hold properties here and derive rental incomes from the same. An ADGM SPV however, is tax resident in the U.A.E., and can apply for a tax residency certificate from the Ministry of Finance (subject to certain conditions).

Advantage : ADGM SPVs.

Formation process and timelines:

JAFZA Offshore:

Shareholders (or their authorized representatives) have to sign in front of the JAFZA Offshore authorities. In case of authorised representatives, notarised and U.A.E. embassy attested Powers of Attorney have to be presented. In the event of corporate shareholding, the legal documents of the corporate shareholder have to be notarised and attested by the U.A.E. embassy in the country of origin. Formation usually takes 10-12 working days, subject to timely security clearances.

ADGM SPV:

It is not mandatory for shareholders to sign in front of the ADGM Registration Authority. i.e. shareholders do not have to visit the ADGM in order to form the company. In case of corporate shareholding, while the ADGM does not require attestations (a big plus for the cost and time saving), the attested documents would be required in due course anyway, at the time of opening bank accounts. Formation usually takes 5-7 working days, subject to timely security clearances.

However, in case entities are required to be formed quickly for specific purposes (signing of legal agreements, for example), the ADGM process holds a distinct advantage.

Advantage : ADGM SPVs.

Bank accounts:

Banks are increasingly becoming wary of opening accounts for JAFZA offshore companies. Some banks have even stopped accepting applications for such structures. The ones who do accept applications, apply intensive KYC procedures, sometimes taking upto a month to issue approvals.

ADGM SPVs are more acceptable to banks, but KYC procedures do take time, and consistent followup efforts.

Advantage : Neutral.

Costs:

JAFZA Offshore – Year 1 : US$ 2,780 / annual : US$ 750

ADGM SPV – Year 1 : US$ 1,700 / annual : US$ 1,200

Corporate service provider costs are extra, and tend to be higher in the case of ADGM SPVs (usually 20-30%).

Advantage : Neutral.

Endnote:

As is evident from the comparisons above, ADGM SPVs hold distinct advantages over JAFZA Offshore companies. They are more flexible, robust and bring familiarity of Common Law to overseas investors. JAFZA Offshores will always have a market, especially in cases where privacy is essential, and where the structure is required to do more than just act as a passive holding company.

Our opinion? In cases where the requirement is solely to hold property, with an additional view of legacy planning, an SPV in the ADGM blows the competition out of the water. Unless of course, transparency is not preferred. But then, in the age of information exchange and increased focus on disclosures, how long would opaqueness last anyways?

PS: The Dubai DED also allows companies set up in the DIFC, to purchase properties under their name. It would be interesting to compare the offerings at the DIFC, to the ADGM SPV. We did this in an earlier article (that can be read here); however, viewing it from the ‘property holding option’ angle would be an added advantage. Stay tuned!

 

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