The DIFC recently issued new Prescribed Company Regulations, setting out a consolidated, broader and more cost effective regime for special purpose companies in the DIFC. This article outlines the key changes and their implications for all DIFC-based prescribed companies.
The new regulations repeal and replace the DIFC Special Purpose Company Regulations, and provide for existing Special Purpose Companies and DIFC Intermediate Special Purpose Vehicles to be reclassified as Prescribed Companies. Key changes resulting from the new Prescribed Company Regulations (the Regulations)1 are summarised below.
A Prescribed Company may be established either for a "Qualifying Purpose" or by a "Qualifying Applicant".
A Qualifying Purpose now includes (i) aviation financing and leasing, and (ii) family holding structures, in addition to structured financing transactions as covered by the previous Special Purpose Companies (SPC) regime.
The former DIFC Intermediate Special Purpose Vehicles (ISPV) regime was available to family offices, holding companies, proprietary investment companies and DFSA regulated fund managers already present in the DIFC. The Regulations have expanded the number of Qualifying Applicants to include also:
- fintech entities, foundations and private trust companies already present in the DIFC
- authorised firms and funds (regulated by the DFSA or another recognised financial services regulator)2
- government or government-related entities in the UAE
- any entity wholly-owned by any one or more of the above
A Qualifying Applicant must "control" the Prescribed Company. This is a broad definition, which captures direct or indirect control through the holding of shares or voting power, as well as control arising as a result of powers conferred under the company's articles of association or other relevant documentation.
Role of Corporate Service Providers
The Regulations provide for Corporate Service Providers (CSPs) to have a potentially expanded role in relation to Prescribed Companies. CSPs may perform assessments and checks in relation to the DIFC's anti-money laundering and ultimate beneficial ownership requirements, pay fees, and file reports, disclosures and confirmations on behalf of a Prescribed Company (should the latter so wish and provided that there are appropriate arrangements in place between the CSP and the DIFC Registrar).
There was previously a requirement that a CSP should provide the majority of the directors of an SPC. This requirement has been removed in relation to Prescribed Companies, allowing for more flexibility in board structuring.
Reporting and disclosure
Prescribed Companies are classified as Small Private Companies under the DIFC Companies Law, meaning that they are not required to file their accounts with the DIFC Registrar or to have them audited.
In addition to the standard annual confirmations, a Prescribed Company must also confirm that it continues to be controlled by one or more Qualifying Applicants or continues to serve its Qualifying Purpose.
A Prescribed Company with a structured financing as its Qualifying Purpose, but which does not have an authorised firm as a transaction party, must also give certain additional confirmations. Declarations will be required from the initiator (i.e. the ultimate beneficiary of the transaction) and each of the directors of the Prescribed Company as to the nature and purpose of the transaction to ensure that:
- it does not circumvent foreign ownership restrictions
- it does not change the nationality of a shareholder or interest holder to avoid foreign investor requirements
- it does not avoid the imposition of any tax or duty as a result of the UAE nationality of the Prescribed Company
The DIFC is sending a clear message here that Prescribed Companies must not be used for purposes that may be illegal or damage the reputation of the DIFC.
Prescribed Companies have more flexible office requirements as compared with other DIFC private companies. Fees are also reduced, with annual licensing fees of US$1,000, and a one-off incorporation fee of US$100.
1 The Regulations were issued under the Companies Law, DIFC Law No. 5 of 2019, and took effect on 31 October 2019
2 A Prescribed Company may be used by a fund manager, a trustee or a general partner as an SPV to hold property on behalf of a fund, but may not be used to be the fund manager, trustee or general partner
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.