Holding Intellectual Property using an ADGM SPV for Startups

  • 06-07-2019

ADGM Special Purpose Vehicles (SPV) are robust, flexible and customisable. The ADGM is a growing onshore international financial centre, one among two prominent financial services jurisdictions in the MENA region.

ADGM entities are established under the 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.

The importance of Intellectual Property

During the 18th and 19th centuries, assets were mostly physical, and hence easy to identify, value and control. The 21st century however, and especially the decades of the information technology revolution, have seen a lot of emphasis on Intellectual Property (IP), or intangible assets.

Many companies, especially startups, do not recognise the critical importance that their IP has in their businesses. In some cases, the business model is in itself dependent on the protection of the related IP - failure to do so can result in competition copying the same and even worse, registering the IP in their names.

Identification, protection and exploitation of IP

Identifying valuable IP is a process in itself. Both management and staff have to perform this exercise on a consistent basis, especially in edutech enterprises. Multi-jurisdictional firms may face an additional challenge in coordinating their IP identification efforts.

IP, once identified, should be protected. This exercise is detailed, and involves a thorough analysis of the current jurisdictions where the organisation operates, the associated costs and the risks involved in not moving fast enough. Some jurisdictions, such as the European Union, allow for  a single application process; most others have to be done individually. IP protection costs in the GCC are high (approximate US$ 4,300 per country), and there is no unified system for IP protection, which means that startups often face the dilemma of deciding when to go ahead with registering the IP.

Once protected, the IP has to be exploited. Here again, multiple mechanisms  exist, from internal IP licensing, to third-party licensing for production in the name of the licensor. In case of some activities, such as services, extensive agreements covering IP licensing and payment of royalties have to be put in place.

We had a client operating in three jurisdictions with sales in fifteen others. Each  operational jurisdiction had one piece of IP that was cross-licensed to the others and sold in all 15, thus having a potentially 500 transactions to record in its accounts and contracts management database. Then there are tax and transfer-pricing considerations to add to the mix.

Using an ADGM SPV to hold IP

Using an ADGM SPV to hold Intellectual Property has multiple benefits, including:

  • Streamlining of internal processes for inter-group licensing
  • Simpler IP-licensing processes
  • Consolidation of multi-jurisdictional IPs under one entity
  • Separation of IP from the operational company, thus protecting the IP from operational liabilities
  • Ability to claim tax relief under DTAAs signed with the UAE (provided that economic substance is maintained)
  • Mechanism to support standalone IP valuation

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

Legal Structure

An ADGM SPV holding Intellectual Property would usually be setup as a Private Company Limited by Shares.

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. A recent development has been the implementation of The UAE Economic Substance Regulations, under which companies holding Intellectual Property would have to satisfy certain criteria in order to qualify for exemptions under DTAAs.

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.  

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 corporate service provider fees. 

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.
 
 
 
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