In Brief
- On 15 July 2024, the DIFC Prescribed Company Regulations (“New PC Regulations”) were implemented, replacing the Prescribed Company Regulations issued in 2019.
- The New PC Regulations aim to simplify and expand the prescribed regime (“Prescribed Companies”), diversifying the entities permitted to set up in the Dubai International Financial Centre (“DIFC”).
- The ongoing expansion of the Prescribed Companies regime has been balanced with the objective of ensuring that the DIFC remains a jurisdiction of substance. This has been achieved by facilitating market requirements while maintaining a transparent and robust legal and regulatory framework.
Prescribed Companies in a nutshell
Prescribed Companies are passive holding companies established in the DIFC to ring-fence and isolate assets and liabilities from financial and legal risk. Prescribed Companies enjoy various benefits including (but not limited to) reduced incorporation and licensing fees and exemption from certain regulatory requirements that would typically apply to private companies under the applicable DIFC laws.
Key changes to the Prescribed Companies Regime
Qualifying Requirements
The previous definition of “Qualifying Applicant” has been amended to ensure that an applicant intending to incorporate a new, or continue an existing, Prescribed Company in the DIFC satisfies at least one (1) of the following criteria:
- the Prescribed Company shall be controlled by one (1) or more:
- GCC Persons (i.e. a GCC citizen, a body corporate or unincorporated body controlled by a GCC citizen, a body corporate that has any class of its securities listed on a securities exchange in the GCC, the UAE government or person in which the UAE government owns (directly or indirectly) an interest of at least 25%, or such other percentage as approved by the DIFC);
- Registered Persons (i.e. a DIFC registered entity other than a Prescribed Company and non-profit incorporated organisations (“NPIO”)); or
- Authorised Firms (i.e. a person that holds a licence from the DFSA or a Recognised Financial Services Regulator to carry on one (1) or more Financial Services, excluding a Representative Office);
- the Prescribed Company is to be established or continued in the DIFC for the purpose of holding legal title to, or controlling, one or more GCC Registerable Assets (i.e. an asset or property interest that must be registered with a GCC Authority to establish legal ownership, secure rights or claims against it, and to provide public notice of such interest);
- the Prescribed Company is to be established or continued in the DIFC for a Qualifying Purpose (see below section on Qualifying Purpose); or
- the Prescribed Company appoints as a director, an employee of a registered Dubai Financial Services Authority corporate service provider (“CSP”) and such CSP has an arrangement with the DIFC Registrar of Companies to carry out certain compliance functions on behalf of the Prescribed Company, as set out in the New PC Regulations.
The New PC Regulations provide that “Control” in relation to the relevant criteria mentioned above is exercised:
- by means of the holding of shares or the possession of voting power, directly or indirectly; or
- as a result of any powers conferred by the articles of association or other document regulating the Prescribed Company or such other person,
so that the affairs of the Prescribed Company or such other person are conducted in accordance with such person’s wishes.
Qualifying Purpose
Although the definition of “Qualifying Purpose” has been preserved from the previous PC Regulations, the earlier categories of “DIFC Holding Structure” (a Prescribed Company used to hold shares in other DIFC-registered entities) and “Innovation Holding Structure” (a Prescribed Company used to hold shares in entities that use, develop or test new or innovative technology) have been removed. The category of “DIFC Holding Structures” is now redundant due to the new “GCC Registerable Asset” qualifying requirement, which encompasses holding shares in DIFC-registered entities.
Additionally, the expanded qualifying requirements pursuant to the New PC Regulations are broad enough to support innovation-holding structures, without designating them as a separate qualifying purpose.
Other notable amendments
Under the New PC Regulations, a Prescribed Company is not permitted to have employees and can only be licensed to carry out the activity of “holding company”, unless established for a qualifying purpose.
For existing Prescribed Companies that are no longer classified as Prescribed Companies under the New PC Regulations, the introduction of the potential to be licensed as an Active Enterprise provides a pathway to achieve compliance, while continuing to benefit from reduced DIFC fees and flexible licensing (discussed below).
Active Enterprises
Active Enterprises are companies which are also private companies limited by shares, that benefit from a similar regulatory regime to Prescribed Companies. The Active Enterprise licensing regime has been introduced to offer additional structuring options with reduced fees and flexible licensing arrangements for applicants who meet specific criteria.
Two key differences between Prescribed Companies and Active Enterprises are as follows:
- Active Enterprises are permitted to hire employees; and
- Active Enterprises may be licensed to carry out the following activities:
(i) holding company;
(ii) managing office; and
(iii) proprietary investment related activities.
In order to classify as an Active Enterprise, the company must also be controlled by one (1) or more of the following applicants:
- a DIFC registered entity (that is not a NPIO, foundation or a Prescribed Company);
- an affiliate of a DIFC registered entity (that is not a NPIO, foundation or a Prescribed Company);
- a shareholder or an ultimate beneficial owner that controls a DIFC registered entity (that is not a NPIO, foundation or a Prescribed Company);
- a government entity; or
- a family-operated business with a substantial presence in the UAE (which has a substantial demonstrable presence in the UAE).
Conclusion
The expanded Prescribed Companies regime is a positive advancement, offering a broader group of potential applicants with additional structuring options to support business activities in and from the DIFC.
As a result of the introduction of the New PC Regulations, existing Prescribed Companies should assess whether they continue to meet the qualifying and operational requirements set out in the New PC Regulations. In the event that existing Prescribed Companies fall outside of the new regime, they may wish to consider whether they satisfy the requirements to be classified as an Active Enterprise.
We are available to address any question you may have about the above. For more information, please contact Ahmad Sergieh, Partner, Head of Corporate, Dubai a.sergieh@hadefpartners.com.