There are a multitude of different types of company sizes and structures. From sole proprietorships to partnerships all the way up to large multinational corporations with multiple business units. When structuring a business there is never a one size fits all approach and business needs must be evaluated on a case-by-case basis.
The use of a holding company structure is an effective way for businesses with multiple subsidiary entities to maximize tax efficiencies, minimize risk by ring-fencing assets and even prepare a business for sale or succession.
What is a holding company?
A holding company also sometimes known as a parent company or umbrella company is a business entity which holds a controlling interest in other subsidiary companies. It cannot sell goods or services itself and plays no active management role in the subsidiaries below it, instead playing just a supervisory role and providing a centralized management function for a corporate group.
This allows for a number of commercial, regulatory, legal and tax benefits. It can protect profits and separate assets from a main trading company, minimize risk or even prepare a company for sale or succession.
What are the benefits of a holding company?
Ringfencing Assets and Liabilities
One of the primary benefits of creating a holding company is its use in ringfencing assets or liabilities, giving the subsidiaries below it limited liability.
This is particularly beneficial for companies expanding into new markets or launching a new product or service. Using a holding company can ensure that the assets of the existing company are fully safeguarded, and it is protected fromany potential liabilities that may arise from the new venture.
Having a group structure creates synergies and efficiencies across the group. Instead of each company needing an in-house team for functions such as HR, marketing, finance, IT or legal, all of these functions can be managed by the holding company.
This will allow the business to make significant savings which can then be extended to each of the subsidiaries.
Another benefit of restructuring a group of companies within a holding structure is the options it creates for succession planning and asset retention.
In the event that you want to pass on one of the trading entities to family members or even sell it, you can do this while still holding on to property or other assets yourself.
The UAE levies just 9% corporate tax on profits above AED375,000 and 0% tax on corporate income below this threshold, additionally companies benefit from exemption from taxes on capital gains and dividends.
With no income tax imposed on holding companies in the UAE, this is also an effective way for businesses to hold assets outside the UAE and receive tax savings on any dividends and income earned.
The majority of jurisdictions offering holding company setup allow shareholders to obtain a UAE residence visa. This makes the process of opening a bank account much easier. Additionally, it’ll be easier to establish credit with banks and obtain loans, since the bank will factor in the financial strength of all the subsidiaries under the holding structure when offering credit.
Which jurisdictions allow the use of holding companies in the UAE?
There are two ways to establish a holding company within the UAE: Onshore in the UAE mainland or in a free zone.
Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) are two particularly attractive jurisdictions in which to establish a holding company and hold assets both locally in the UAE market and overseas.
Both allow 100% foreign ownership and zero income, capital, asset or profit tax for 50 years, and both provide a strategic location in which to access emerging regional markets and the security of a legal framework based on British Common Law.
Which types of companies should consider the use of a holding company structure?
There is a belief that the use of holding companies is only necessary for large, multinational corporations with numerous subsidiaries beneath them. However, holding companies are also beneficial for SMEs as a means to split assets from trading companies or even facilitate financing by acting as a collective financing vehicle to invest in other companies.
How can Global Link help?
Global Link has over 16 years’ experience working with local and global businesses, providing bespoke consultancy services for company incorporation in Dubai and the wider UAE.
We can advise you on setting up a holding company in the UAE and provide support through the incorporation process and beyond, liaising with all relevant parties on your behalf to ensure a swift and seamless business setup.
If you need advice on holding companies or for any other company incorporation, visa or PRO service, please get in touch with us on +971 4 553 9901 or email us at [email protected] and we will be happy to assist you.