SPVs in DIFC AND ADGM explained

A Special Purpose Vehicles (SPVs), also known as Special Purpose Companies (SPCs), is a separate legal entity formed to fulfill a specific and a limited objective. In simple terms, the SPV is an independent company which has its own legal status, assets and liability structure and maintains separate balance sheets (also known as off-balance sheets) from that of the parent company. It is a form of bankruptcy-remote entity, which can be explained as, when the parent company goes bankrupt it doesn’t impact the SPV created by this company and allows the SPV to operate. Likewise, if the SPV ends up in bankruptcy while carrying out a project involving high risks, it doesn’t affect the parent company which created the SPV to take on the project. 




SPVs in Abu Dhabi Global Market

Abu Dhabi Global Market’s SPVs intends to provide for a vast scope of businesses and industry sectors a smooth, adaptable and efficient system to set up SPVs in the form of a subsidiary company, project or joint ventures, with an objective of mitigating financial risks by giving such subsidiaries or joint ventures a separate legal status. ADGM’S feature of following the common law jurisdiction, along with its easily adaptable regime, has been successfully in drawing multitude of investors in the past few years. ADGM provides for two types of legal setups for SPVs: Private Company (Limited by Shares) – LTD and Restricted Scope Company.




Key Features of ADGM SPV:



In the year 2016, DIFC (The Dubai International Financial Centre) introduced a regime on the intermediate special purpose vehicles (Intermediate SPVs). The following regime has been established to meet the needs of the major investors and to provide them with a more time and cost-efficient structure to downstream their investments. This new regime reduces some of the requirements as to the establishment and operation of the DIFC limited companies and limited liability companies. One of the major benefits of this new regime is that it has simplified the application process and made the application forms shorter.  Also, the new regime grants the applicants to use the already existing space in DIFC as the registered office of the Intermediate SPV, thereby relieving them of leasing or acquiring additional office space for the purpose of establishment and operation of such an entity. 

The new Intermediate SPV will add to the DIFC’s existing Special Purpose Company (SPC) regime, which has gained popularity in the market, but it is designed to have a restricted application limited to only structures financing transactions, whereas, the Intermediate regime will provide for another option when it comes to structuring of investments from the DIFC, to be specific financing is not involved. Where the applicant intends to apply for more than one Intermediate SPVs, even though it may require separate application forms but one business plan would be enough as long as the Intermediate SPVs are part of the same overall investment structure. However, the business plan will have to include a number of regulatory confirmations with respect to the Intermediate SPV, along with, it will be used for a fund or a holding vehicle or for proprietary investment purposes and also a statement of that no other business will be undertaken. 


Key features of this regime

However, there is still an uncertainty at this stage if the Intermediate SPVs will be able meet the necessary minimum substance requirements to avail the eligibility of applying for a tax residency certificate from the UAE Ministry of Finance to benefit from the UAE’S double tax treaty network. If they did, then it would turn out to be a significant advantage over SPCs (Special Purpose Companies) as they are not currently eligible for tax treaty benefits in the UAE. 


Who can apply under this regime for Intermediate SPVs?

The Intermediate SPV can be only be applied by those who already have an established substantive presence in the DIFC and at the same time fall in one of the following categories to be a qualifying applicant:



Also, the qualifying applicant must be able to prove the ownership of the proposed Intermediate SPV.  Thus, both the ADGM AND DIFC’S SPVs regime has its own influence on the market participants as per their needs and objectives. To know more on which jurisdiction suits you better to set up SPVs in UAE, please contact our specialized team of lawyers who can provide you with expert guidance in your decision making.