18 Nov 2022

Expansion of DIFC Prescribed Company Regime

Authored by: Ahmad Sergieh and Sundus Khan

In Brief:

  1. The Dubai International Financial Centre (“DIFC”) initially introduced the DIFC Prescribed Company regime in 2019, providing investors options to use the DIFC Prescribed Company structure for among others, aviation structures, crowdfunding and structured financing.
  1. The DIFC has recently amended the DIFC Prescribed Company Regulations to provide further options available to establish a Prescribed Company in the DIFC.
  1. The key amendments to the DIFC Prescribed Company Regulations have expanded the scope of the definitions of “Qualifying Purpose” and “Qualifying Applicant”, as well as clarifying the relevant provisions of the DIFC Companies Law which apply to DIFC Prescribed Companies.

The DIFC Prescribed Company Regulations came into force in 2019, and repealed the old DIFC Special Purpose Company Regulations of 2008 (“SPC Regulations”), which provided for Special Purpose Companies to be established in the DIFC. As a result of the enactment of the DIFC Prescribed Company Regulations, all Special Purpose Companies under the SPC Regulations were reclassified as Prescribed Companies.

Prescribed Companies are a type of special purpose corporate vehicle available in the DIFC which are established by way of submitting an application to the DIFC Registrar of Companies (“DIFC ROC”) to incorporate a Private Company pursuant to the DIFC Companies Law No. 5 of 2018 (“DIFC Companies Law”). The key distinction between a Private Company and a DIFC Prescribed Company is that, unlike Private Companies, the Prescribed Company is exempt from certain requirements as set out in the DIFC Companies Law.

A Prescribed Company may be established:

  1. by Qualifying Applicants; or
  1. for Qualifying Purposes.

The key amendments to the DIFC Prescribed Company Regulations expands the scope of the definition for both “Qualified Applicants” and “Qualifying Purpose”.

We note that in accordance with the amended DIFC Prescribed Company Regulations:

a.  Qualifying Applicants now also include the following:

  1. a DIFC registered entity and its affiliates. The notable addition is the inclusion of an affiliate which is defined as a legal entity that is under the same group structure and has common ownership or control with a DIFC registered entity;
  1. a shareholder or an ultimate beneficial owner that controls a DIFC registered entity;
  1. a person wholly owned by one (1) or more Qualifying Applicants; and
  1. a family operated business, being a business which is owned or controlled by a single family.

The position in respect of Qualified Applicants still remains the same under the amended DIFC Prescribed Company Regulations, with the Qualified Applicant being required to confirm to the satisfaction of the DIFC ROC, that it will exercise control over the Prescribed Company. Control is defined to include the power to secure, that the affairs of the Prescribed Company are conducted in accordance with such person’s wishes by means of holding shares or the possession of voting power directly or indirectly, or as a result of any powers conferred in the articles of association regulating the Prescribed Company.

b.  Qualifying Purpose now also includes the following:

  1. innovation holding structure: which is a structure of one or more persons established for the sole purpose of holding shares in one or more innovation entities, being entities with a business model using, developing or testing new, novel or innovative technology, including utilising technology to provide innovative products and services in accordance with a list published by the DIFC;
  1. maritime structure: which is a structure of one or more persons having the sole purpose of facilitating the owning, financing, securing, chartering, managing or operating of an interest in one or more maritime vessels or maritime units; and
  1. intellectual property structure: which is a structure of one or more persons established for the sole purpose of holding intellectual property for commercial purposes.

Another key amendment to the DIFC Prescribed Company Regulations is the clarification of the applicability of the relevant provisions of the DIFC Companies Law to certain Prescribed Companies. The amended DIFC Prescribed Company Regulations provide that a Prescribed Company which is established for the Qualifying Purpose of crowdfunding shall be exempt from the requirement of the DIFC Companies Law to have no more than fifty (50) shareholders.

Similarly, a Prescribed Company whose Qualifying Purpose is structured financing that is making an offer of its securities to the public to facilitate a bond or sukuk would fall within the definition of public company of the DIFC Companies Law and be exempted from the prohibition of public offers by private companies and the requirement to have no more than fifty (50) shareholders.

We note that the other exemptions of certain provisions of the Companies Law (i.e. the requirement to file its accounts with the DIFC ROC or have the accounts audited) remain unchanged.

Whilst previously, a Prescribed Company could only be established for a limited number of Qualified Purposes, or by a limited type of Qualified Applicants, the amended DIFC Prescribed Company Regulations provides an opportunity for a larger number of investors and businesses to benefit from the expansion of the DIFC Prescribed Company regime. This will enable such investors to revisit their existing structures in order to benefit from the unique regulatory framework applicable in the DIFC together with a substantial reduction of costs involved in devising and maintaining relevant corporate structures.

Conclusion/Recommendation: Hadef & Partners Corporate team has extensive and significant experience advising applicants on the DIFC licensing regime and, in particular, establishing DIFC Prescribed Companies.

For more information, please contact Ahmad Sergieh, Partner, Head of Corporate, Dubai a.sergieh@hadefpartners.com or Sundus Khan, Associate s.khan@hadefpartners.com

 
 

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