Special Purpose Vehicle UAE: Optimize Investment Structures

In the context of the UAE fluctuating financial market, special purpose vehicle UAE (SPV) have become an essential tool for businesses and investors within the value chain of attaining an investment objective.  SPVs provide principals with an alternative to manage a portfolio of assets, limit financial risk with equity financing, and/or increase operational productivity in specific jurisdictions, like the Dubai International Financial Centre (DIFC).

What is an SPV in the UAE?

An SPV is a type of organization established to achieve one, well-defined business objective— insulate a corporate parent from financial risk and to hold significant amounts of capital or engage in complex financial activity. In the UAE, SPVs are established primarily for the following investment structure:

• Asset Holding: However defined, and inclusive of, among others, real estate property, intellectual property, or corporate shareholding subsidiaries.
• Risk Isolation: Separating financial risk from parent companies or investors.
• Structured Financing: Facilitation of securitization, project finance or investment structures.

These entities are attractive, especially given the United Arab Emirates’ (‘UAE’) regulatory framework, tax efficiencies and legal safeguards.

Benefits of SPVs in DIFC

The DIFC is a premium jurisdiction to establish an SPV, due to the advantages afforded such as:

• 100% Foreign Ownership: allowing total control and ownership by foreign investors.
• Tax Efficiency: There are no personal or corporate income taxes and access to various double taxation treaties with the UAE.
• Legal Certainty: complying with a common law system and regulated by an independent judiciary.
• Operational Flexibility: easier compliance and regulations and ability to appoint corporate service provider to administer.

These benefits make DIFC-based SPVs unique and appealing for a wide variety, ranging from investment holding company, to transactions requiring complex structures.

Latest Developments in Regulation

The DIFC has continuously worked toward enhancing the SPV framework in order to accommodate the evolving demands of investors. In particular, the DIFC recently introduced, amongst other things, a Prescribed Company regime, that provides greater flexibility in regards to SPV requirements. Significant benefits of the recent changes include:

• Listing Change: Providing a larger base of applicants able to set up SPV’s includes natural persons, as well as corporate entities.
• Streamlined Responsibilities: There are less prescriptive responsibilities with the use of physical office space and in regards to overall operational substance
• Increased Flexibility: Permit SPVs to hold asset classes in any form including GCC applicable assets, as well as to use SPVs in any investment structure

These regulatory changes have made a strong case for DIFC as a preferred environment for the formation and use of SPVs.

Strategic Uses of SPVs

SPVs in the UAE serve a variety of strategic purposes across sectors:

• Family offices: To supervise wealth, across generations, confidentially and efficiently.
• Investment funds: To structure investments in private equity, venture capital, or real estate.
• Corporate structuring: Isolating certain liabilities or assets to optimize operations and/or control risks.
• Securitization: To combine pools of financial assets for use as investment products for capital markets.

With such varying uses, SPVs continue to be important vehicles for sophisticated financial planning and delivery.

In conclusion, using a Special Purpose Vehicle in the DIFC is a solid solution for investors or companies optimizing investment structures in the the UAE. With the regulatory flexibility, tax efficiency and legal certainty, DIFC-based SPVs represent income-generating strategies in the global financial landscape.