Start a Holding Company in Dubai, UAE
Entrepreneurs in Dubai are always on the lookout for strategies to secure their business assets. While there are several approaches to do so, one of the most effective ones is to divide the business into multiple business entities which are together controlled by a single holding company. In this blog series, we will help UAE business owners understand all that they need to start a holding company in Dubai and how it can be useful for them, mitigating potential risks.
What is a Holding Company?
A holding company is a corporation or LLC which is a parent business entity that solely controls the stock or memberships interests in other companies. This form of a corporation does not sell any products or services and also does not manufacture anything. In fact, it does not do any business operations at all. However, some of the subsidiary companies that it owns do sell, manufacture or conduct the relevant business operations. Such companies are known as operating companies. On the other hand, the other subsidiaries hold intellectual property, real estate, equipment, vehicles, or anything else of value that is used by the operating companies.
When you start a holding company in Dubai it becomes responsible to supervise the daily processes of operating companies. The corporation has the right to select and remove the corporate directors or the LLC managers including major policy decisions such as mergers and closure. But it does not participate in the operating companies’ daily decision-making processes.
Why Should Entrepreneurs Consider Starting a Holding Company?
The core aim of starting a holding company is to run consistent business operations. Such corporations give the leverage to own several businesses where individuals can have the control of business and limit their liabilities. A holding company provides a central point of control over businesses and streamlines the management. These firms can hold an interest of ownership or the assets of other companies, making them strategically act for the operating companies. These companies typically hold equity assets or interests rather than actively being involved in the business operations.
Why Should Entrepreneurs Start a Business in Dubai?
Having humble beginnings, Dubai has come a long way in establishing itself as a successful industrious business center. Soon Dubai transformed from a limited trading community into one of the most vibrant business and social locations in the world in over 20 years. This is exactly why business owners see Dubai as an attractive location to begin their businesses. They see and analyze how far the city has come in these years. According to Dubai Startup Outlook 2021 report, startups get a 13% year-on-year increase in their business ventures, making this city best in terms of rapid economic growth of business enthusiasts.
How to Finance a Holding Company in Dubai?
The management operating the holding company in Dubai is also responsible to make the monetary decisions. This corporation decides where all the capital will be invested. When it comes to its own finance, the firm obtains funds to make further investments by either borrowing or by selling equity interests. Additionally, another way to make investments is by earning revenue from payments it receives from its subsidiaries. Some of the forms include interest payments, dividends, distribution, and rents and payments.
How to Use a Holding Company in Dubai?
Usually holding companies in Dubai are used by diverse kinds of industries and of all sizes. In fact, many of the credible publicly traded firms are holding companies. People buying such companies’ stock do not even realize that they are investing in a holding company and not exactly in the operating company. Typically, holding company structure is followed by large enterprises with several business units. For instance, a large corporation that produces and sells several different FMCG goods including skincare, hair care, baby care and many other products would have a holding company for seamless management. Such enterprises structure with one holding company and multiple subsidiaries than using just one corporation with different divisions.
Under such enterprises, every business unit is operated as a separated subsidiary where the holding company in Dubai has the power to control. The company’s characteristics, property, and equipment tools may be settled in different subsidiaries. And the operating companies pay to use the trademarks, lease of the equipment, rents of offices.
Moreover, such holding companies can also be used for smaller businesses, even by individual entrepreneurs. For instance, an aspiring business owner who wants to purchase an apartment building for rental income. In this case, there will be two companies required i.e. an LLC that will own the building and a holding company that would own the LLC. Another small business example could be of an entrepreneur who wants to expand its business operations. Such a business owner can sell shares in the holding company and with its earning, he can build a farmhouse and a fast food restaurant. This way, a new subsidiary will be formed for both new investments.
How Do You Structure a Holding Company in Dubai?
Once the business owner has decided to use a holding company-operating firm structure, you may ponder on how it is formed. For any new business venture requires at least a formation of two business entities and sometimes more. With every entity there must also be some decisions. Some of the key decisions that must be made prior to structuring a holding company in Dubai include the following:
Type of Business Entity:
There are different types of business entities including LLC, corporation or any other type. And its type is dependent on a number of factors including how the business entity will be managed, how it will be taxed, and will it split its financial interests.
Federal Income Tax Purposes:
This requirement means whether the entity would be a pass-through entity or a separate taxable entity.
Formation of Entities:
As the title implies, it is mandatory to decide where will be the entity located. It is not necessary to start a holding company in Dubai and its subsidiaries in the same state. However, it is mandatory to understand that the operating company in a state other than its formation state will have to be eligible to do business in the foreign state.
Selection of the Entity Name:
The company name must adhere to the requirements of the governing statute. It has a certain abbreviation that indicates the entity type, limits certain phrases and words, and requires the name to be distinguishable on the filing office records from the names of the foreign and domestic business entities. It is always a good idea to reserve the name prior to filing the formation documents.
This individual is required by the statute and appointed by an LLC, corporation or another business entity to receive official communications and service of process. Registered agent can be anyone, an employee, owner, or a lawyer.
What Are the Requirements for Setting up a Holding Company in Dubai?
The complete registration process is mandatory to successfully setup a holding company in Dubai. If a business owner consults a professional advisor for Dubai holding company setup, the process can be expedited and registration can be done ensuring strong relationships within government authorities. The registration process is simple but does require some technical registration formalities. Business owners must ensure completing their registration process through documentation of the following:
- Register in Dubai
- Provide a Business name
- Submit Articles of incorporation and Registered Agent
What is the Process of Setting up a Holding Company in Dubai?
What is the Cost of Starting a Holding Company in Dubai?
The cost of starting a holding company in Dubai will depend on various factors. Usually holding companies are registered in UAE free zones which cost comparatively less than elsewhere. The total cost is made of several components which include the license fee, application preparation, registration of the company name, and security your privacy. However, an estimated amount to start a holding company in Dubai is up to AED 1000.
What Are the Types of Holding Companies in Dubai?
A holding company has two main types of holding companies here in the UAE including:
1. Freezone Holding company 2. Onshore Holding Company
Business owners can enjoy 100% foreign ownership in the freezone. Such owners can have a regional partner having 100% shares for the onshore holding business as well. It is mandatory to choose the form of the holding company in Dubai before registering one.
What Are the Benefits of starting a Holding Company in Dubai?
100% foreign ownership
Another advantage of setting up a holding company in Dubai is to either own 100% shares of the company or split them. This means that the holding company can be used for both ownership and investment for other companies. Having various ownership options, you will have more flexibility in the investment decisions you desire to make in the UAE.
A holding company in Dubai is free from taxes. This is one of the major benefits that attracts several business owners, where purchasing the property through a holding corporation can be a massive tax cut. Those who have setup a holding company in Dubai are comparatively at an advantage over that of private landowners. Such owners gain from no corporate, dividend tax and capital gains.
Opening a business bank account in Dubai can be pretty challenging especially for novice business owners. Luckily when you will have the residency visa and you hold a UAE business license through JAFZA, the process of bank account opening will become effortless.
Long-term Residence Visa
Owning a property in the UAE is easier than you think with the help of a holding company. The holding company solution with JAFZA will entitle you to all the mandatory residency visa. This visa permits you to spend more time in Dubai, UAE for as long as you want. Also, you can sponsor your family and obtain the necessary Emirates ID.
Managing subsidiary companies
Being a single director of an enterprise can be a daunting task. If something goes wrong with your assets, who is going to be liable? That is why, it is always better to divide the subsidiaries under one parent company. The operations will also be streamlined and business will be smoother with the help of a holding company. The designated directors can keep a check on multiple subsidiaries.
Different ownership advantages
You can get a chance to invest better in various opportunities, when you distribute your ownership over different subsidiaries. Also, it has the benefit of reducing personal exposure and ensures anonymity, maintaining your confidentiality. There are various forms of options available depending on which Emirate sets up the holding company such as JAFZA, ADGM, RAK, and others.
Greater Control for a Smaller Investment
A holding company gives the owner a controlling interest in another without having much to invest in. When the holding company purchases 51% or more of the subsidiary, it gains control of the acquired firm. By only purchasing a certain share of a subsidiary, a small business owner has the power of control over multiple entities through small investments.
Consult Avyanco for a Quick Holding Company Setup in Dubai
Opening a business in Dubai requires business owners to be very vigilant. The region has specific rules that must be followed. Unfortunately, even knowledgeable business owners tend to make mistakes while setting up a holding company in Dubai. Therefore, you must always consult a professional advisor to assist you during your company formation or any other business entity. We, at Avyanco, have a certified group of business consultants with years of experience in company registration to providing full-fledged financial compliance services to aspiring entrepreneurs and foreign companies. Get in touch with our representatives today!