Structuring Alert: DIFC turbo charges its holding structure offering

The Dubai International Financial Centre Authority (DIFCA) has announced the expansion of its Prescribed Company – or “Presco” – Regulations.

The decision was made with entrepreneurial families in mind, It is likely to trigger vast and immediate interest from the Dubai and larger region’s entrepreneurial community, as it avails easy access to the sophisticated DIFC regulatory environment to families with operations and investments in the Gulf.

A DIFC Presco is a light requirement / low costs structure designed for the conduct of passive activities, e.g., such as Holding Company, Proprietary Investment, or Managing Office. It can be established by a Qualifying Applicant or for a Qualifying Purpose, as defined in the Regulations. DIFC Prescos are exempted from being physically present in the DIFC.

The DIFC’s announcements expand the definition of Qualifying Applicants and Qualifying purposes.

What's new?

Larger spectrum of Qualifying purposes: previously restricted to structured finance, finance pooling and family holding purposes, the definition now includes the so-called “DIFC Holding Structure”, understood as a structure of one (1) or more Qualifying Applicants established for the sole purpose of holding shares in one (1) or more DIFC entities. Expansion of Qualifying Applicants: the definition of Qualifying applicants has been substantially broadened, now including:

• “Family Owned Business with a large presence in the UAE” – i.e. a business that meets at least 2 of the following criteria:
  • total asset value of USD10+ million in the UAE
  • 100+ employees in the UAE
  • 30,000+ sq. ft. of space in the UAE (including offices, retail, schools, manufacturing); or
  • all shareholders being UAE nationals.
• Shareholders or UBOs of a DIFC Qualifying Applicants – i.e. individual shareholder or body corporate or UBO with a Majority Interest in a DIFC Qualifying Applicant
• “Affiliate” of a DIFC Based Qualifying Applicant – i.e. a legal entity that is under the same group structure and has Common Ownership or Common Control with a DIFC Based Qualifying Applicant;
• any non-retail DIFC entity, other than a Prescribed Company.

Broad definitions: all of “Majority Interest”, “Common Ownership” and “Common Control” are defined broadly.

“Majority Interest” means that the shareholder or UBO is able to demonstrate meeting at least 1 of the following criteria:

1. own the majority of shares in the DIFC Qualifying Applicant;
2. have majority of voting rights in the DIFC Qualifying Applicant; or
3. has the ability to appoint/remove the majority of directors/members of the governing body of the DIFC Qualifying Applicant;

“Common Ownership” means that one (1) or more persons (directly or indirectly) own the majority of shares in both the DIFC Based Qualifying Applicant and the Affiliate;

“Common Control” means that either:

1. the same person(s) (whether directly or indirectly) control both the DIFC Based Qualifying Applicant and the Affiliate by: A. having the power to appoint/remove the majority of directors/members of the governing body; or B. direct or control the management of both entities; or
2. the same corporate governance / constitutional document(s) applies to the governance and management of both entities.

Case Study: Use of PresCos in conjunction with foundation as holding vertical for real estate assets

Prominent member of UAE family (the “Principal”) holds large portfolio of real estate assets across the UAE in his personal name.

He wishes to ensure that his assets are consolidated and passed on to his sons and daughters without dilution, with each child an equal beneficiary.

In compliance with regulations/practices of each relevant Land Department, he sets up one holding structure per specific Emirate; a DIFC PresCo is constituted for Dubai assets.

A DIFC foundation is registered and shares of all holdings settled onto it, with children as beneficiaries in equal parts. Real estate portfolio is consolidated under the structure [applicable transfer fee of 0.125% (as opposed to 4%) of the value of the real estate assets].

What improves?

• Consolidation of income generating assets.
• No probate / anti-dilution
• Distribution of proceeds as per Principal’s wishes
• Access to DIFC’s Common law regulatory framework
• Protection against potential (creditors’) attacks
• Privacy
• Cost-Effective tools

Case Study: Use of PresCos in conjunction with foundation to re-structure local conglomerate with large UAE presence

Conglomerate owned by Lebanese family of Muslim faith is involved in over 10 business sectors under the umbrella of one group (power and energy, construction and real estate, education). It has offices worldwide and more than 2,000 employees (including 150 employed locally and working in offices of about 35,000 sq. ft).

As the group is about to make a large acquisition, beneficial owners wish to optimize the structuring of their operations with business sustainability as primary objective.

All companies and business assets consolidated under one vertical composed of a DIFC PresCo as group holding entity. Each business vertical is segregated via different sub-holding entities (DIFC PresCo).

Upon completion of operational entities restructuring, ownership of the DIFC PresCo group holding entity settled onto DIFC Foundation.

What improves?

• Distinct legal entity: assets are removed from beneficial owners’ personal estate
• Distribution of proceeds as per Founders’ wishes and protection against forced heirship rules
• Enhanced privacy
• Degree of control retained
• Preservation of unity of assets and continuity
• Protection against future creditors’ attacks
• Robust common law regulatory framework
• Low maintenance cost