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HOLDING COMPANY IN DUBAI
A holding company in Dubai is a business that holds the assets and/or stock of other businesses. Although it holds its subsidiaries to run its businesses, it does not conduct any business activities directly. By separating its assets from the liabilities of its subsidiaries, it also shields its shareholders from liability concerns.
Holding corporations are favored by both foreign and domestic investors and business owners in the UAE, just like many other business structures. Holding companies operate within the UAE’s legal and regulatory framework for business. The holding company registration is governed by DMCC in Dubai. Holding firms are permitted to possess stock in other businesses but aren’t allowed to engage in commercial activities like trading, producing goods, or offering client services.
It is easier to start a business and lowers barriers to entry because there is no specific paid-up capital requirement for you to possess a holding company in Dubai. Owning a holding corporation requires just $1 as minimum capital.
Refer to Dubai company incorporation if you wish to know more about the company registration process.
TYPES OF HOLDING COMPANIES IN DUBAI
- Public Joint Stock Company (PJSC) – A PJSC holding company is listed on either the Dubai Financial Market or the Abu Dhabi Securities Exchange. It is required to have a minimum capital of AED 10 million. Being a publicly listed company, it can offer its shares to the public and is subject to stringent regulatory requirements.
- Private Joint Stock Company (PJSC) – A PJSC holding company, unlike a public one, is not listed on any stock exchange. It also has a lower minimum capital requirement of AED 2 million. It operates as a closed company, and its shares are typically owned by a limited number of individuals or entities.
- Limited Liability Company (LLC) – An LLC holding company is a popular choice among small and medium-sized businesses. It requires a minimum capital of AED 300,000. LLCs provide limited liability protection to their shareholders and allow for flexible ownership structures.
- Free Zone Company – A free zone holding company is registered within one of Dubai’s free trade zones. These zones offer special tax exemptions and regulatory benefits to attract foreign investment. Free zone companies have the advantage of 100% foreign ownership and enjoy simplified import/export procedures.
- Offshore Company – An offshore holding company is registered in a jurisdiction outside the UAE, commonly known as a tax haven. These companies are primarily used for holding assets or conducting international business. They offer advantages such as privacy, tax optimization, and asset protection.
REQUIREMENTS FOR STARTING A HOLDING COMPANY IN DUBAI
- It has to establish a management board that will be responsible for developing organizational policies for the subsidiary(ies);
- The management board must also oversee the operations of the subsidiary;
- Every subsidiary company must have a director appointed by the holding company’s shareholders;
- The holding company is responsible for making sure the subsidiary(ies) have the funding they need to operate;
- Foreign currency, market, and even industry risks must be subject to restrictions set by the holding firm, and the holding will decide on any contracts and other agreements signed by the subsidiary.
RESPONSIBILITIES OF THE MANAGEMENT BOARD
A holding corporation must abide by a number of rules and regulations established by the UAE government. In order to make managerial and top-level decisions on how the subsidiaries will be handled, the holding company must form a management board with numerous authorized members. The following are a few of the management board’s primary duties:
- The management must set up a systematic process to oversee the operations of the subsidiary companies regularly.
- A director must be appointed by the board to work with the subsidiary firms as the management board’s representative.
- For the purpose of ensuring operational and legal compliance, the director will also oversee the daily business operations carried out by the subsidiaries.
- Despite the fact that regulatory bodies have not established a specific paid-up share capital for the holding company, they must make sure that each of the subsidiaries has enough money to operate.
- The management board of the holding company has the power to decide strategically on risk management and the amount of risk that its subsidiaries are exposed to. To accomplish this goal, they can set a credit limit or a debt-to-equity ratio. The board also has the authority to decide on other risk exposures, such as those that are industry- or currency-specific.
- The board is also responsible for ensuring that all subsidiaries uphold their part of any contracts and agreements they have with suppliers, customers, and other stakeholders.
PROCESS OF INCORPORATING A HOLDING COMPANY IN DUBAI
- Choose a business name – Select a unique name for the holding company and conduct a name search to ensure its availability in the chosen jurisdiction.
- File articles of incorporation – Prepare and file the articles of incorporation or similar organizational documents with the appropriate government agency, such as the Secretary of State or the relevant authority in the chosen jurisdiction.
- Obtain necessary licenses and permits – Determine and obtain any required licenses and permits for the holding company to legally operate in Dubai. This may vary depending on the type of business activities.
- Create bylaws – Develop bylaws or operating agreements that outline the internal rules and regulations of the holding company.
- Organizational meeting – Conduct an organizational meeting with the incorporators or initial members to establish the foundation of the holding company and discuss key matters such as the appointment of directors or managers.
- Issuance of shares or membership interests – Issue shares of stock (for a corporation) or membership interests (for an LLC) to the initial shareholders or members of the holding company. This determines their ownership stakes.
- Elect a board of directors or managers – Appoint a board of directors or managers to oversee the operations and decision-making of the holding company.
- Acquire subsidiary companies – Once the holding company is established, it can acquire the stock or membership interests of other companies to become their parent company. This allows for centralized control and management.
COSTS OF ESTABLISHING A HOLDING COMPANY IN DUBAI
The following expenses are associated with forming a holding company in Dubai:
- AED 120 for initial approval
- AED 600 for Registration of a trade name
- Business Center fees are AED 25,000 (if applicable) and AED 600 for License application
The applicant will also be required to pay free zone costs, which vary depending on the selected free zone. Ideally, license costs for free zones begin at AED 15,000 per year.
The expenses listed above do not include potential fees for business advice or other administrative charges, such as creating the Memorandum of Association. The applicant may have to pay up to AED 20,000 or more to incorporate a holding company, including rent, office supplies, and consulting fees.
ADVANTAGES OF FORMING A HOLDING COMPANY IN DUBAI
- Asset protection – Asset protection is an important part of any business. A holding company structure helps protect the parent firm’s assets from any potential risks or liabilities related to its subsidiaries.
- Centralized control – One can combine the ownership and management of numerous subsidiary firms into one organization by setting up a holding company. This makes it easier to centralize decision-making, plan strategically, and manage the group’s activities more efficiently.
- Tax advantages – Dubai offers holding companies a number of tax advantages. Holding companies operating in free zones can benefit from exemptions from import/export levies as well as corporate and personal income taxes. The possibility of double taxation is reduced by Dubai’s wide network of double tax treaties.
- Financial flexibility – Holding companies can acquire more funds through debt or equity financing to support their investment, acquisition, or expansion plans. Additionally, they may use the combined assets and financial strength of their subsidiaries to bargain with lenders for more favorable financing terms.
DISADVANTAGES OF FORMING A HOLDING COMPANY IN DUBAI
- A holding company might make it difficult for creditors and investors to have a clear picture of the holding company’s overall financial situation.
- The creation of a holding company opens the door for fraudulent directors to conceal their losses by redistributing debt among various subsidiaries.
- Holding firms can also exert influence over their subsidiaries by pressuring them to elect designated directors or compelling them to buy goods from one another at rates that are higher than the going rate. Additionally, they could force subsidiaries to sell goods to one another for less than market value.
- Parent firms have the power to force their subsidiaries to change policies or appoint specific directors.
Reach out to us at Relin Consultants for further assistance with your Dubai holding company formation.
Can a foreigner own a holding company in Dubai?
Yes, foreigners can fully own and establish a holding company in Dubai, particularly in the free zones. Free zones allow 100% foreign ownership, providing an attractive environment for international investors.
Can a holding company in Dubai hold shares of companies outside the UAE?
Yes, a holding company in Dubai can hold shares of companies both within and outside the UAE. This flexibility allows for the consolidation of ownership and control of subsidiaries operating in various jurisdictions.
What are the tax advantages of establishing a holding company in Dubai?
Free zone holding companies in Dubai can benefit from tax exemptions on corporate and personal income tax, as well as import/export duties. However, it’s important to note that mainland holding companies are subject to UAE’s corporate tax, currently set at a rate of 30%.
Can a holding company in Dubai access the UAE's double tax treaties?
Yes, holding companies in Dubai can benefit from the UAE’s extensive network of double tax treaties. These treaties help prevent double taxation by allowing for the reduction or elimination of taxes on income earned in countries with which the UAE has signed such agreements.
What is the role of a local sponsor in mainland holding companies?
Mainland holding companies in Dubai require a local sponsor or partner who holds at least 51% ownership in the company. The local sponsor’s role is to fulfil the UAE’s legal requirements and act as a local representative, but profit sharing and operational control arrangements can be made through a well-drafted agreement.
Can a holding company in Dubai operate in multiple sectors?
Yes, holding companies in Dubai can engage in various sectors and industries. They have the flexibility to own and control subsidiaries operating in different sectors, allowing for diversification and strategic expansion.