Comprehensive Guide to SPVs in the ADGM - 10 Leaves

  • 28-03-2020

INTRODUCTION:

The Abu Dhabi Global Market (ADGM) has been open for business only since October 2015, but it has already garnered much praise and respect over its efforts to differentiate itself through unique offerings. It pioneered the FinTech Abu Dhabi summit, attended by over five hundred global Financial Technology (FinTech) personalities; and has launched a series of collaborations with different companies such as Temenos, Al Ansari, and Mastercard to help forward its FinTech initiative.

Another such 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.

What is the ADGM?

The Abu Dhabi Global Market is an international financial centre for local, regional and international institutions, established in Abu Dhabi, the capital of the United Arab Emirates, and operational from 2015. It has been voted the ‘Financial Centre of the Year (MENA)” and has continuously brought out innovative solutions for the growing financial services market in the region.

ADGM has three independent authorities – the Registration Authority, the Financial Services Regulatory Authority (FSRA) and ADGM Courts. ADGM entities are established under Common Law. Whereas other jurisdictions codify the English common law, the ADGM has adopted it completely in its original form. This is implemented to help facilitate ease of doing business for foreign investors – a first in the region.

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.

Features of an ADGM SPV:

An ADGM SPV offers multiple classes of shares, including fractional shareholding, 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 – certified copies suffice
  • No restrictions on nationality of ownership
  • Minimum requirement of just 1 shareholder and 1 director – can be non-resident
  • One GCC-resident authorised signatory required
  • No minimum share capital
  • No maximum number of shares

What can an ADGM SPV be used for?

The typical uses of an SPV include:

Passive Holding Companies:

Companies can use an ADGM SPV to hold shares, real estate and other investments. These can be passive holdings only, i.e. they cannot be actively managed, since ADGM SPVs cannot avail visas and employ staff. They can also be used for proprietary investments. A lot of our clients use ADGM SPVs to hold tech-startup licenses in the ADGM and the DIFC.

Securitisation:

Companies can use an ADGM SPV to securitise receivables and loans by selling assets to it, and then use the SPV to obtain financing. Based on how the transaction is structured, an ADGM SPV may be regarded as a bankruptcy remote entity, hence isolating the assets sold to the SPV from risk, in the event that either the SPV, or the parent company whose assets are being securitised, goes bankrupt.

Financing:

ADGM SPVs can be used in financing and off-balance sheet transactions.

Real Estate Investments:

ADGM SPVs can be used to purchase and hold property in Abu Dhabi and Dubai, and anywhere else in the world.

Legacy Planning:

An ADGM SPV can be used as part of legacy-planning and inheritance structures, so as to facilitate the smooth transition of assets from one generation to the next. Such structures may also involve the use of ADGM Foundations.

Comprehensive Guide Imagery

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.

Risk Sharing:

ADGM SPVs can be used to form vehicles for specific projects, especially in the case of joint ventures. A separate operational entity would be required to carry out the actual project management.

Legal Structure:

Most ADGM SPVs are structured as “Private Company Limited by Shares”, which is a standard private company limited by shares, similar to UK Limited Companies. One shareholder & 1 Director companies are permitted. However, the SPV has to appoint at least one GCC-resident authorised signatory, as part of the Nexus requirements.

Restricted Scope Companies, (or RSC) are allowed as well, to certain clients. 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.

What is the Nexus Requirement?

The UAE issued it’s Economic Substance Regulations (ESR) in April 2019, and there have been changes made to the ADGM SPV requirements, in line with the ESR. Now, the Registrar requires the SPV to demonstrate a satisfactory connection to the GCC region.

This connection can be demonstrated in a number of ways, including documentary evidence that:

  1. 1. The SPV is owned or controlled by a UAE or GCC based private company, family office or individual;
  2. 2. The SPV holds assets that are located in the UAE or the GCC Region (this can be shares in underlying companies in the UAE or Saudi Arabia or anywhere else in the GCC);
  3. 3. The SPV facilitates transactions connected, or provides real or economic benefit, to the UAE;

or

  1. 4. The SPV’s purpose includes the issuance of Securities that will be admitted to the Official List maintained by the Financial Service Regulatory Authority (FSRA), and / or admitted to trading on a licensed platform that is established in the ADGM.

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, such as office space and minimum expenditure requirements.

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 our offices for this purpose.  

Do I need a company secretary?

Using the services of a company secretary to maintain the ADGM SPV is good corporate governance. Here are the services that a basic company secretarial service entails:

  • • Systematic corporate status maintenance in accordance with the ADGM requirements
  • • Maintenance of the company’s statutory registers
  • • Arranging for mandatory statutory filings of the company’s financial statements with the Registration Authority
  • • Assistance with the appointment of auditors, if required

It is recommended that you use our company secretarial services to maintain compliance with the statutory regulations, and annual returns.

Migration or continuance of existing corporate entities:

ADGM allows for the relocation and re-domicile of companies to ADGM from other jurisdictions. A company which is incorporated outside ADGM may apply for the issuance of a certificate confirming that it continues as a company registered under ADGM Companies Regulations. The company must be authorised to make such an application by the laws of the jurisdiction under which it is currently incorporated.

Why migrate your company into the ADGM?

Many businesses and individuals are seeking the comfort that comes from transferring valuable assets out of jurisdictions on the other side of the world. Migrating overseas SPVs or Holding Companies into ADGM can bring legal ownership of assets to a jurisdiction with internationally aligned robust regulations and for many in the GCC it will mean doing business closer to home, within a reputable legal environment. Clients can also benefit from the use of local, world-class professional advisors with more visible presence.

Can I migrate my company into the ADGM?

If you are interested in migrating your company into ADGM, you should first verify with the relevant agencies whether your current jurisdiction allows for outbound migration. Traditional jurisdictions which permit continuance into another jurisdiction include BVI, Cayman Islands, Jersey and Guernsey, amongst others.

How do I setup my SPV in the ADGM?

Setting up an SPV in the ADGM involves the following broad setps:

Pre-approvals – Submission of a business plan, detailing the structure, shareholders and purpose of the SPV. In case of a holding structure, the downstream investments would have to be identified and details provided in the business plan.

Application – The full application is compiled and submitted to the ADGM, once the pre-approvals are received.

The customised Memorandum and Articles of Association of the SPV is reviewed and signed electronically by the client, and sent across along with standard KYC documents and undertakings.            

We can complete the full process online, without the presence of the client.

Receipt of Corporate Documents – The following documents are received, upon successful completion of the process:

  1. Commercial License
  2. Memorandum and Articles (vetted)

Bank Account Opening:

The ADGM SPV, being a product offered by an onshore, transparent jurisdiction, is well received by banks in the region. We can assist in the opening of a bank account with major local banks such as Emirates NBD and Mashreq Bank.

Costs:

ADGM Setup fees (Year 1) : US$ 1,700 (including Certificate of Incumbency)

ADGM Annual fees (Year 2 onwards) : US$ 1,200

Get in touch with us for a fee quote for our professional services!

Bottomline:

The SPV regime in the ADGM is well structured, flexible and very cost-effective. Offering an international 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

 

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