As businesses expand and diversify their operations and investments, the need to consolidate assets and management takes on growing importance. This is particularly true in Dubai where the international nature of its investor base and high concentration of wealth necessitate simple solutions for diverse business endeavors.

Throughout the years, many strategies have emerged but among the most effective is the segmentation of a business into multiple distinct entities, each under the ownership and control of a centralised holding company.

This article looks at the main features and functions of holding companies and why you should consider establishing one in Dubai.

What is a holding company?

A holding company is a type of business entity that primarily exists to own, control, or manage other companies’ stocks and assets, often referred to as subsidiaries. The holding company cannot sell goods or services itself, nor actively manage the subsidiaries under it. Instead, it provides centralised control, consolidates ownership, and serves as a protective shield for the assets of its subsidiaries. This provides several commercial, legal and tax benefits, including asset protection, tax planning, simplifying the management of multiple businesses or investments or even preparing a company for sale or succession.

Who are holding companies for?

There is a common misconception that holding companies are only relevant to large, multinational corporations with an extensive network of subsidiaries or high-net-worth-individuals that are looking to manage and protect their assets more effectively. While these two parties can benefit significantly, holding companies can also be equally advantageous for small and medium-sized enterprises (SMEs), serving as a valuable tool for segregating assets from trading entities and acting as a unified financing platform to channel investments into other businesses.

Ultimately, the holding structure benefits businesses of all sizes looking to create a more organised and structured approach to overseeing their subsidiaries.

Why set up a holding company in Dubai?

Establishing a holding company in Dubai offers several compelling advantages. Firstly, the city’s strategic location at the crossroads of Europe, Asia, and Africa provides access to emerging markets and global trade routes, a significant benefit for companies with cross border operations or those involved in international trading.

UAE corporate law also offers holding companies attractive prospects for real estate ownership and retaining shares in other corporate entities with associated tax planning opportunities, banking benefits and asset security.

Some of the primary advantages include:

Safeguarding Assets and Liabilities

Creating a holding company serves as a robust strategy for protecting assets and limiting liabilities. This is especially advantageous when businesses venture into new markets or launch new products or services. By using a holding company, existing company assets remain shielded, safeguarding it from potential liabilities associated with new endeavors.

Streamlined Group Operations

A group structure yields operational synergies and efficiencies. Rather than each subsidiary maintaining in-house teams for various functions like HR, marketing, finance, IT, or legal, the holding company can oversee and manage these functions. This streamlined approach results in substantial cost savings, which can then be passed down to each subsidiary.

Enhanced Succession Planning

Restructuring a group of companies into a holding structure offers the advantage of providing flexibility for succession planning and asset retention. Should the need arise to transfer ownership of a trading entity to family members or sell it, you can do so while retaining ownership of property and other assets.

Tax Advantages

The UAE’s corporate tax (CT) rate of 9% is among the lowest in the world and is only levied on profits exceeding AED 375,000 with 0% CT on any profits below this threshold.

Furthermore, businesses enjoy tax exemptions on capital gains and dividends. With no income tax levied on holding companies, businesses can effectively hold assets outside the UAE, benefiting from tax savings on dividends and income earned.

Simplified Banking

Many jurisdictions allowing the establishment of holding companies offer shareholders the opportunity to obtain a UAE residence visa.  Having a manager/director or shareholder with a UAE residence visa makes the process of opening a corporate bank account much easier. Additionally, the holding structure makes it easier to establish credit and obtain loans, since banks consider the financial strength of all subsidiaries within the holding structure when extending credit.

Setting up a holding company in Dubai

Location

Holding companies can be established in Dubai in one of two main jurisdictions:

• Onshore
• In one of the emirate’s free zones, such as DIFC, DMCC, JAFZA

Both jurisdictions offer distinct pros and cons. Companies based in mainland Dubai can conduct business across the entire UAE, enabling broader market access. However, they will incur tax on their corporate income at a rate of 9%. In contrast, a free zone registered holding company can benefit from profit tax exemptions of up to 50 years but may have restrictions on conducting certain business activities or accessing the mainland market.

Registration

Registration of the holding company is done through the DED for a mainland setup or through the managing authority of the relevant free zone if you decide to go that route.

The steps are basically the same as with any other company setup in Dubai, with a few specific caveats. Dubai’s Company Law, stipulates that holding companies must establish a management board responsible for formulating and organising subsidiary regulations, overseeing their operations, and implementing restrictions to mitigate market risks, including foreign exchange exposure.

Each subsidiary is also required to have its own director and adequate resources for effective functioning. The negotiation and arrangement of terms are managed by the holding entity.

How can The Knightsbridge Group help?

The Knightsbridge Group has over 20 years of experience in the domain of corporate structuring and wealth management. We have unparalleled knowledge of business practices and legal requirements in the UAE as well as an international network of contacts and a deep understanding of the needs of modern-day high net worth clients and international businesses.

We can assist you with setting up a holding company, helping you make informed decisions about the most suitable location, legal structure, and financial setup for your holding company. We can also provide insights into the tax implications, asset protection strategies, and wealth management solutions to ensure that you achieve maximum financial benefit and full compliance.

If you need help with this or any other immigration, financial or corporate structuring issue, please don’t hesitate to contact us on info@kbgroup.ae and we will be happy to help.