Setting up a holding company in the UAE can be an excellent way to manage various assets and investments. This guide will walk you through the process and highlight key factors to consider, such as legal structure, document requirements, costs, tax implications, and the management board.
Key Takeaways
- Understand the different legal structures available for holding companies in the UAE.
- Make sure you have all the necessary documents ready before starting the setup process.
- Be aware of the various costs involved in setting up and maintaining a holding company.
- Know the tax benefits and obligations that come with establishing a holding company in the UAE.
- Form a competent management board to oversee the operations and decisions of the holding company.
1. Legal Structure
When setting up a holding company in the UAE, choosing the right legal structure is crucial. The legal structure determines the company’s operations, liability, and governance. Here are some common structures to consider:
- Limited Liability Company (LLC): This is a popular choice for many businesses. An LLC requires a minimum of two and a maximum of fifty shareholders. It offers flexibility in ownership and management.
- Public Joint Stock Company (PJSC): Suitable for larger enterprises, a PJSC allows for raising capital through public shares. This structure is ideal for businesses looking to expand significantly.
- Professional Company: This structure is designed for licenced professionals like doctors, engineers, and consultants. It allows them to form a company while limiting personal liability to their own actions.
Establishing a holding company in Dubai involves filing articles of incorporation in your chosen jurisdiction, be it mainland or free zone. Additionally, you must prepare legal documents such as the Memorandum of Association (MOA) and other contractual agreements.
Each of these structures offers different benefits and limitations, so it’s essential to choose the one that best fits your business needs.
2. Document Requirements
When setting up a holding company in the UAE, you must gather and submit several important documents. Meeting legal and administrative requirements is crucial to ensure a smooth process.
First, you will need a Memorandum of Association (MOA) and Articles of Association (AOA). These documents outline the company’s structure and the roles of its members. Additionally, you will need a trade licence that permits specific business activities.
Other necessary documents include:
- Passport copies and visa documents for shareholders and directors
- A lease agreement for the registered office
- Board resolutions authorising the establishment of the subsidiary
- In some cases, a Power of Attorney to delegate authority
Ensuring you have all the required documents will help protect your company from potential legal issues down the road.
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3. Cost Considerations
When setting up a holding company in the UAE, understanding the costs involved is crucial. The costs vary depending on factors such as business activity, office space, and visa requirements. On average, you can expect to spend around AED 30,000-40,000 for initial setup.
Licencing and Registration Fees
Licencing fees are one of the primary expenses. These fees can differ based on the type of business activity and the location of your company. For instance, operating from DIFC offers numerous benefits but comes with added expenses such as licencing fees and registration costs.
Office Space and Facilities
Leasing office spaces can notably affect the total cost of initiating a holding entity in the UAE. Shared facilities and business support services, such as meeting rooms and reception services, can help reduce initial setup costs.
Professional Services
It is advisable to work with experienced professionals to facilitate Emirates business enrollment for optimal cost savings. These services might include legal advice, administrative support, and other consultancy services.
Larger firms might encounter elevated expenses from heightened transaction fees and licencing charges. Therefore, it is essential to plan your budget carefully to avoid unexpected costs.
4. Tax Implications
Setting up a holding company in the UAE comes with attractive tax benefits. These include exemptions from corporate tax, which add to their financial advantages.
Holding companies in the UAE enjoy:
- No limits on capital repatriation.
- Tax-free status if the company is considered a Qualified Free Zone Person:
A Qualified Free Zone Person is a business entity that demonstrates sufficient economic substance, earns specified income, and keeps proper documentation. If it generates non-qualifying income, a 9% tax rate applies. However, it is exempt if this non-qualifying income
does not exceed 5% of total revenue or is less than AED 5 million. Consequently, income from foreign permanent establishments in a Free Zone is fully taxed at 9%.
Furthermore, holding companies can benefit from a Participation Exemption.
In this case, dividends and other profit distributions coming from owning an interest (known as a ‘participating interest’) in a foreign legal entity (‘participation’) are exempt from tax if the following conditions are met:
- The ownership interest is at least 5%.
- There is a 12-month uninterrupted holding period, or the intention to hold for 12 months.
- No more than 50% of the assets owned by the participation consist of interests or entitlements that would not qualify for the participation exemption if held directly by the taxable person.
The ‘subject to tax’ requirement is met if:
- A 9% effective tax rate (ETR) is applied to the participation’s income or profits.
- If the relevant jurisdiction’s tax regime does not apply a 9% ETR, the ETR reaches 9% when recalculated under the provisions of the UAE CT Law.
Additionally, a participating interest of less than 5% may qualify for the exemption if the acquisition cost exceeds AED 4 million.
It’s important to note that tax obligations for income generated beyond UAE borders adhere to the legal regulations of relevant jurisdictions.
This tax benefit allows holding companies to undertake foreign transactions without worrying about withholding taxes. This flexibility encourages global contribution and commercial ventures, augmenting the advancement and influence of the parent entity.
WellTax can help with exploring other tax benefits and the eligibility of your company for tax benefits.
5. Management Board
Setting up a management board is a crucial step when forming a holding company in the UAE. This board will oversee various aspects of the subsidiaries’ operations. Here are some key responsibilities:
- Establishing rules and regulations for the subsidiaries.
- Organising the structure of the subsidiaries.
- Supervising the activities of the subsidiaries.
Each subsidiary must have a director assigned to it. The director will be responsible for overseeing the finances and business operations of the subsidiary.
Ensuring that subsidiaries have adequate capital to operate effectively is mandatory. The management board must also make strategic decisions about risk management.
Continuous observation is essential. The management must create a strict procedure to supervise the business activities of the subsidiary companies continuously.
The Management Board is dedicated to steering our company towards success. Our team of experts ensures that every decision aligns with our mission to provide top-notch services. Want to learn more about our leadership and their vision? Visit our website today!
Conclusion
Setting up a holding company in the UAE can be a smart move for many businesses. This guide has covered the main points you need to think about, from the benefits of such a structure to the different types of holding companies and the tax rules. By following the steps and tips provided, you can make sure your holding company is set up correctly and runs smoothly. Remember, it’s important to follow local laws and international standards to avoid any legal issues. With careful planning and the right advice, your holding company can help you manage your assets and investments more effectively.
