Special Purpose Vehicles (SPVs) are passive holding companies established for the purpose of isolating financial and legal risk by ring-fencing certain assets and liabilities. It is a private company limited by shares, similar to a UK limited company or a C-Corp in Delaware, established by shareholders for specific purposes, typically to hold shares in other companies. Often, it merely holds shares in the operating companies or subsidiaries responsible for conducting the startup’s business activities. ADGM SPVs have gained popularity as the preferred choice for holding companies among startups and investors in the MENA region.

WHY ADGM SPV?
The choice of ADGM SPV is essential due to the rising regulatory scrutiny, increased risk exposure, and complex cross-border transactions. It’s crucial to segregate financial and legal risks by isolating assets and liabilities associated with specific transactions. This segregation is necessary to safeguard the integrity of these transactions and the assets intended for corporate or private use. SPVs serve a variety of narrow, specific, or temporary corporate and private family objectives, including acting as subsidiaries, project or joint venture entities, facilitating financing, sharing risks, raising capital, structuring intellectual property rights, functioning as holding companies, and providing real estate protection structures.

A non-substantiated vehicle (SPV, special purpose vehicle), which is a free zone company, to conduct “Exempt activities” pursuant to the ADGM Special Company Regulations such as:

• Acquisition, holding or disposal of any asset;
• Securitizing assets, Investing in UAE real estate property;
• Issuing investments;
• Redeeming or terminating or repurchasing, whether with a view to re-issue or to cancel, an issue in whole or in part, of investments;
• Entering into transactions or terminating transactions involving investments in connection with the issue, redemption, termination or re-purchase of investment.

Why the adgm as international financial center for spvs?

• Top tier financial center with numerous international memorandums of understanding in place facilitating international recognition
• Part of oecd & eu white lists of tax cooperative jurisdictions
• Common law jurisdiction: common law of england and wales on civil and commercial matters directly applicable which provides high level of legal certainty and reliability. Adgm spvs are subject to the adgm companies regulations 2015
• Independent adgm courts
• Best-in-class risk based independent regulatory framework
• Adgm’s three independent authorities (registration authority, financial services regulatory authority and adgm courts) provide a consistent, reliable and stable legal environment enabling registered companies to conduct business in confidence
• Access to broad uae double tax treaty network (subject to meeting requirements as set out by ministry of finance to obtain tax domicile certificate)
• No attestation required for corporate documents
• Spvs are granted a commercial licence mentioning that the company is conducting special purpose vehicle activities
• Use of standard form of transactional documentation for increased efficiency
• Tax benefits:
  • 0% direct tax
  • 0% withholding tax
  • No restriction on repatriation of capital
  • No foreign exchange controls
  • Access to uae network of double tax treaties

 ADVANTAGES OF AN ADGM SPV

• SPVs are corporate vehicles, typically private companies limited by shares, incorporated to segregate financial and legal risk by ring-fencing assets and liabilities to avoid systemic risk within a Group of Companies – claims made by the SPV’s creditors cannot be attached to the assets of the SPV’s shareholders or any of its sister companies – and ensure that only assets attached to a related transaction are exposed to the associated liabilities.
• SPV serves to fulfill narrow, specific,, or temporary corporate objectives such as subsidiaries, project or joint venture vehicles, and holding companies.
• SPV’s cost-effective, straightforward setup process, due diligence procedure & reporting requirements. However, a more limited public disclosure requirement can be met by the use of a ‘Restricted Scope Company’ SPV.
• SPV can use the registered address of an ADGM registered agent, its ADGM parent company’s address.
• A Foreign company can re-domicile/ migrate to ADGM pursuant to section 102 (application to Registrar for continuance within ADGM for the issuance of a certificate confirming that it continues as a company registered pursuant to ADGM Companies Regulations) in appliance with main jurisdictions ‘legislations such as BVI, Cayman Islands, Jersey and Guernsey.

 
USES OF ADGM SPVS

1. Securitisation:

ADGM SPVs can be utilized for securitisation purposes, where the originating party can create an SPV to purchase loans or receivables. The SPV issues debt, secured by these assets, ensuring priority payment rights for asset-backed securities holders. This setup limits recourse to the asset originator.

2. Real Estate Investment:

ADGM SPVs can acquire real property titles, limiting recourse for mortgage lenders based on the asset’s location. Selling SPV shares in some jurisdictions can result in lower taxes and transaction fees compared to transferring the property directly.

3. Financing:

SPVs help ring-fence investments, enabling financing without increasing parent company debt levels or exposing parent or SPV assets to cross-liabilities.

4. Asset Transfer:

SPVs facilitate asset transfers along with material agreements. This allows the transfer of ownership while preserving essential agreements crucial to maintaining the asset’s value.

5. Risk Sharing:

SPVs can form project companies for joint ventures, defining management responsibilities while legally isolating joint venture partners from associated risks.

6. Raising Capital:

SPVs can raise capital at favorable rates, with creditworthiness determined by the SPV’s collateral, not the parent company’s credit rating.

7. Intellectual Property (IP):

SPVs can separate valuable IP into standalone entities with minimal liabilities. These SPVs can raise funds and engage in license agreements with third parties. They are particularly useful for managing products with diverse IP components.

Eg 1: Passive Holding Structuring using ADGM SPV (ADGM Special Purpose Vehicle)

Eg 2: Financing – Asset Ring Fencing Structuring: Using ADGM SPV (ADGM Special Purpose Vehicle) 

 Eg 3: Securitisation Structuring: Using ADGM SPV (ADGM Special Purpose Vehicle)

RESTRICTION OF SPVs:

1. Passive Activities Only:

An ADGM SPV is limited to passive activities and cannot conduct commercial operations. It cannot engage in operational activities. The restriction is specific to the holding company’s operational aspect, such as offering consultancy-related services, manufacturing, real estate-related advisories etc and invoicing. These restrictions do not affect its capability to receive funds as dividends.

2. Ownership without Operation:

While it can own shares in operating companies or subsidiaries, an ADGM SPV cannot actively operate or manage the businesses it owns.

3. No Employee Engagement:

ADGM SPVs are prohibited from having employees. This means they cannot hire staff or issue work visas.

4. Limited Commercial Engagements:

They are not allowed to enter into any commercial agreements with customers or suppliers. This includes restrictions on renting office spaces or engaging in direct customer transactions.

5. Financial Transactions Permitted:

Despite limitations, ADGM SPVs can open bank accounts and receive funds. They can handle financial matters, including receiving investment funds or dividends from their subsidiaries.

In the ever-evolving landscape of international business, the strategic significance of ADGM SPVs becomes apparent as a vital foundation. These vehicles offer startups and investors in the MENA region a sophisticated framework that goes beyond the conventional. From facilitating securitization to enabling real estate investments, ADGM SPVs showcase their versatility, providing not just financial structuring but also adept risk mitigation.

What sets ADGM SPVs apart is the commitment of the ADGM to provide legal clarity, coupled with the allure of tax benefits. Positioned as a top-tier financial center, the ADGM underscores the importance of SPVs as the preferred choice for those navigating the intricacies of cross-border transactions amidst heightened regulatory scrutiny.

In essence, ADGM SPVs emerge not just as financial instruments but as strategic allies, seamlessly navigating complexities and providing a robust foundation for startups and investors in the MENA region.

ADGM’s Company Service Provider framework (“CSP Framework”) came into force on 12 April 2021.

The purpose of the introduction of this CSP Framework was to ensure a robust regulatory regime for the provision of company services in ADGM that is aligned with international best practices and to support the ongoing growth of ADGM’s Special Purpose Vehicles (SPVs) and Foundation structures.

The CSP Framework included the following two key elements.

1. Persons providing or intending to provide company services in or from ADGM must meet the strengthened regulatory requirements set out in the amended ADGM commercial legislation and Rules; and

2. Setting up and maintaining a “non-exempt” SPV or foundation in ADGM requires the appointment of an ADGM-licensed Company Service Provider.

On 23rd February 2023, the CSP Framework was amended, introducing additional requirements for CSP Licensees including but not limited to,

• mandatory annual certification of CSP staff;
• filing of audited accounts annually (regardless of company size);
• minimum regulatory capital;
• staff physical presence in the ADGM registered office;
• minimum professional indemnity insurance cover; and
• provision of an annual compliance return.

What are company services?

“Providing company services” under the Commercial Licensing Regulations 2015 (Controlled Activities) Rules 2023 means providing any one or more of the following services:

• acting as an incorporation agent in connection with the incorporation or registration of ADGM body corporates;
• providing company services to any body corporate incorporated or registered under the Companies Regulations 2020 or the Foundations Regulations 2017;
  acting as a Registered Office Provider;
• providing directors, secretaries, councillors, registered agent, or other officers to any body corporate in ADGM; or
• providing nominee shareholders of companies to any body corporate in ADGM
• “Registered Office Provider” means the business activity of providing registered office services to any body corporate in ADGM.

Being granted an ADGM Company Service Provider (CSP) Licence enables CSPs to be appointed to provide company services (e.g. company formation, registered office address, and company filing services) to non-exempt SPVs and foundations, under ADGM’s CSP Framework.

As we delve into the intricate landscape of ADGM’s Company Service Provider (CSP) Framework, MS Group helps you with setting up advice. We understand the nuances, and we’ve not just embraced the complexity but mastered it. With a commitment to precision, we position ourselves as your trusted partner, ensuring seamless compliance with the CSP Framework. At MS Group, we’re here to meet and exceed your unique business needs in ADGM. Let us be the key to unlocking regulatory excellence tailored just for you.

Under ADGM’s CSP Framework, setting up and maintaining a non-exempt SPV or foundation requires the appointment of an ADGM-licensed Company Service Provider.

Note: existing non-exempt SPVs and foundations must notify the Registrar of the appointment or cessation of a CSP within fourteen (14) days of the appointment or cessation.

Disclaimer:

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Global Possibilities: Harnessing ADGM’s Holding Entity Advantage

A holding entity is a company that is set up by the shareholders set up to hold assets such as shares of private companies, shares in publicly listed companies, real property, intellectual property rights (‘IP rights’), Land, Ship/vessel, Aircraft, Machinery, Art, Crypto Currency, other fixed assets, etc.
Holding entities can be used on a stand-alone basis or form complex structures whereby, for example, there exists a master holding entity and sub-holdings for specific geographies or sectors that specific assets fall under. Holding vehicles offers streamlined investment arrangements with a degree of flexibility.
If the legal framework in the specific jurisdiction permits, individuals have the option to utilize a holding entity based in the UAE for managing their assets in the UK. For instance, an ADGM LTD entity can be employed to oversee the intellectual property rights of well-known brands in diverse consumer markets. RAK ICC and DIFC are other options as well.
Investors looking to bring in their different projects and entities under one single umbrella prefer ADGM as the ideal jurisdiction considering the option of holding structures available.

There are two types of holding structures in ADGM: Operational Holding Companies and Special Purpose Vehicles.

Activities

Operational Holding Companies are those companies whose Principal activity is owning a group, and facilitating an umbrella environment, and can be combined with other operational activities while SPVs are passive holding companies. As the word passive indicates, they are merely set up for holding ownership of equity and non-equity assets, with a specific purpose like issuing investments or investing in real property, and cannot conduct operational activities.

Nexus

One another element is the Nexus Requirements: which means that to incorporate an SPV in ADGM, a connection to the UAE or GCC must be demonstrated, either by way of ownership or by way of facilitating transactions benefitting UAE. Whereas there is no such nexus requirement for Operational holding companies.

Employees and visa eligibility

While operational holding companies can hire employees and issue visas in proportionate to the office space they have taken, SPVs are not eligible for visas and cannot engage employees.

Office Space:

Operational Holding Companies must have a physical address in Al Maryah or Reem Island and this must be evidenced through a Lease Agreement, whereas SPVs, though they require an address, must use the registered address of their CSPs or their parent companies in ADGM.

Appointment of Corporate Service Provider:

As per the CSP framework in ADGM, it is Mandatory for non-exempt SPVs to appoint and maintain a registered Company Service Provider (CSP) throughout the life span of the company. However operational holding companies are not required to appoint a CSP.

ADGM Fees:

Set-up costs are another attractive feature of SPVs when compared to Operational Holding Companies as the incorporation fee for SPVs is USD 1900 while operational company set-up is USD 10,000.

Corporate Governance

ADGM corporate governance requirements like the appointment of shareholders, directors, authorized signatories, and other annual compliances almost remain the same for both companies.

Given the multiple options of establishing a holding entity and the flexibility this corporate provides, investors and businesses have been attracted to ADGM.

To know more about the Holding structures in ADGM and the compliance requirements, connect with MS!

Disclaimer

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Abu Dhabi Global Market (ADGM) is a beacon of economic dynamism and innovation in the United Arab Emirates (UAE). Among its numerous distinctions, one feature that makes ADGM stand out as an international prominence is its embrace of English common law as the foundational element of its legal framework. Unlike jurisdictions that have sought to codify common law, ADGM has boldly integrated the entirety of original English common law into its legal system, thus bringing in a sophisticated legal regime. This read embarks on an exploration of the implications, significance, and contributions of this distinct approach, unraveling how it ensures ADGM’s stature as a leading global financial center.

The English Common Law Framework in ADGM

The cornerstone of ADGM’s legal structure lies in the English Law Regulations 2015. This comprehensive framework encompasses a diverse array of legal principles, including the equitable realm, which permeates numerous domains such as contracts, torts, equitable remedies, unjust enrichment, damages, conflicts of laws, security, and personal property. Notably, certain English statutes that modify or replace fragments of common law are adapted into the ADGM context, while real property matters are addressed distinctly in the Real Property Regulations 2015. ADGM English common law framework and several English statutes (implemented locally and consistently with the English form) and ADGM enactments which have been primarily drafted from English statutory precedents and, partly, from those of other commercially respected common law jurisdictions provide many advantages to legal practitioners and business operating in the ADGM.

The Common Law in ADGM Courts

Article 1 of the Application Regulations establishes that English common law, along with equity principles, holds direct precedents in ADGM courts. The Application Regulations enable ADGM courts to continually refer to English common law as an “evergreen” basis, reflecting the evolving English case law. ADGM courts are granted authority to make necessary adjustments to suit ADGM’s specific circumstances. This approach ensures that the dynamic and updated body of English common law case law serves as a valuable precedent for ADGM, providing legal predictability.

Adaptation and Flexibility

Although it is unlikely that any two cases will be identical, this body of precedent contributes to the stability of the law. ADGM’s courts will consult relevant precedents and utilize them to deduce the application of the law to the given circumstances. In cases where ADGM’s unique context demands it, the courts have the power to depart from common law precedents. However, such departures are expected to be infrequent due to the commercial nature of most disputes and the sparse application of similar provisions in other jurisdictions that adopted similar carve-outs.

Contrary Provisions and Applicable Abu Dhabi Law

Nonetheless, the common law, as adopted through the Application Regulations, remains subject to any contrary provisions of ADGM enactments or Applicable Abu Dhabi Law. The concept of “Applicable Abu Dhabi Law” encompasses various legal sources such as the UAE Constitution, federal laws applicable to ADGM, and other relevant regulations.

ADGM’s Distinct Approach

The ADGM has intentionally chosen to adopt an all-encompassing and evergreen approach to English common law precedents within its legal system. This approach, shared with other jurisdictions that historically or currently receive English law, offers distinct advantages to ADGM and its business and legal community.

The benefits of ADGM English Law include:

1. Familiarity and Flexibility.

English common law’s reputation as a sophisticated framework for commercial arrangements makes it a preferred choice for commerce globally. Its adaptable nature is particularly suited to business transactions, especially in a financial context. This aligns with ADGM’s purpose of establishing a financial center in Abu Dhabi. Notably, major financial centers like London, New York, Singapore, and Hong Kong all follow the common law system.

2. Certainty and Cost Reduction.

ADGM’s approach reduces upfront legal costs and the likelihood of litigation. English common law already covers a wide spectrum of scenarios, guiding commercial transactions where detailed case law is crucial. The Application Regulations ensure that all of this case law holds automatic precedential value in ADGM.

3. Dynamic Common Law Developments.

ADGM’s attribution of direct precedential status to English common law circumvents the need for a unique locally codified version. This approach is based on an exhaustive examination of diverse situations, organized into rules and principles while remaining adaptable to changing circumstances. ADGM maintains continuous access to English common law scholarship, ensuring guidance on applying existing principles to current scenarios.

4. Case Law Volumes.

ADGM’s alignment with common law developments in established jurisdictions benefits a comparatively smaller center like ADGM. It directly benefits from cases that test and apply common law principles in English courts, as well as persuasive judgments from other significant common law jurisdictions.

5. Evergreen Approach and Adaptation.

The evergreen application of English common law ensures that common law developments automatically apply in ADGM. However, the Application Regulations grant ADGM courts the flexibility to adjust the common law to better suit ADGM’s context if necessary. This ensures that ADGM maintains a legal system that is both robust and responsive to its evolving needs.

MS – Your Guide to ADGM’s Common Law Jurisdiction.

The ADGM has intentionally chosen to directly incorporate English common law precedents on an ongoing basis in its legal framework, similar to other jurisdictions that receive or historically received English law. This approach is advantageous for several reasons.

At MS, we are committed to helping our clients understand the Abu Dhabi Global Market’s (ADGM) common law jurisdiction. With our expert knowledge and tailored services, we ensure that you can make the most of the benefits offered by ADGM’s robust legal framework.

In the ever-evolving landscape of wealth management, ADGM foundations are a compelling alternative to traditional trusts, offering a unique combination of legal structure, tax advantages, and high flexibility.

What makes ADGM Foundations stand out?

ADGM foundations are different from traditional trusts as they assume the form of independent legal entities, each endowed with a separate legal personality. This distinctive feature provides them with a remarkable degree of autonomy and independence, setting them apart as more than just financial arrangements. Founded with the intention to safeguard assets on behalf of beneficiaries while adhering to legal objectives, ADGM foundations become a robust instrument for a wide range of financial and succession planning and structuring needs.

Streamlined Succession Planning

One attribute of ADGM foundations lies in their effectiveness in enabling seamless succession planning. In contrast to conventional models, which often include complex and uncertain asset distribution, the transfer of asset ownership to an ADGM foundation provides a streamlined process governed by common law. Be it the transfer of business interests, property holdings, financial investments, or alternative assets, ADGM foundations offer a strong and legally binding structure for clear and efficient instructions on asset distribution.Legacy Planning
Moreover, the hallmark of ADGM foundations is their perpetual existence. Even in the absence of the founder, these foundations continue to operate, preserving the founder’s intentions across generations. This longevity empowers families and individuals to establish comprehensive, long-term succession plans that transcend their lifetimes, ensuring their legacy lives on.
Diverse Asset Portfolio ADGM foundations open doors to a broad spectrum of asset types, accommodating business assets, real estate, financial investments, alternative assets, art, and high-value possessions. This adaptability allows families and businesses to consolidate their diverse holdings under a single, unified structure. The result is a simplified approach to asset management and an organized strategy for wealth preservation.

Seamless Business Integration

Another exceptional benefit of ADGM foundations is their capacity to seamlessly integrate existing operational businesses. The process, involving the transfer of ownership from the founder to the foundation, is relatively straightforward, provided all legal prerequisites are met. This paves the way for businesses to expand beyond geographical boundaries while maintaining operational continuity.

Sharia’ Compliance and Flexibility

ADGM foundations are designed to cater to a wide array of needs, including those governed by Sharia’ principles. The foundations offer the flexibility necessary to align with Sharia’ compliant operations, upholding the requirements of ADGM Foundations Regulations as well as the Sharia’ principles.

Overcoming Sharia’ Law Challenges

In the UAE, where Islamic law governs inheritance, ADGM foundations offer a viable solution for businesses with Muslim shareholders. The transfer of shares to non-Muslims under the rules of Sharia’ law can be complex. The foundation acts as a secure holding entity for these shares, ensuring that beneficiaries receive their rightful inheritance without infringing upon Sharia’ law. In situations where ADGM laws conflict with Sharia’ law, ADGM foundations operate under ADGM laws and fall within the jurisdiction of the ADGM Courts. Properly structured Sharia’ compliant foundations, endorsed by Sharia’ scholars, can effectively mitigate the chances of conflicts between laws.

Distributed Ledger Technology Integration

As the financial world advances, ADGM is at the forefront of change. The proposed legislative framework for foundations employing Distributed Ledger Technology (DLT) showcases ADGM’s readiness for the digital age. This framework accommodates DLT projects looking to use tokens for issuance and trading

Wealth Preservation

ADGM foundations offer not just legal autonomy, tax efficiency, and Sharia’ compliance but also a robust platform for individuals, families, and businesses to preserve their financial legacies. By establishing an ADGM foundation, you can segregate your personal assets from your business assets. This separation helps shield your personal wealth from any financial risks associated with your business activities.

As the reputation of ADGM continues to soar and its ecosystem thrives, the future holds great promise for ADGM foundations in shaping the landscape of wealth preservation and succession planning, both within the Middle East and beyond.