Formation of SPVs at ADGM

Abu Dhabi Global Market (ADGM) has emerged as a leading international financial hub, offering a comprehensive legal and regulatory framework that makes it a top destination for businesses and financial institutions. Established in 2013, ADGM is strategically located on Al Maryah and Al Reem Islands, reinforcing Abu Dhabi’s reputation as a premier global financial center. One of the most attractive offerings in ADGM is the formation of SPVs at ADGM, which provides a flexible, secure, and efficient way to manage and isolate financial risks through the creation of Special Purpose Vehicles (SPVs). These entities are invaluable for companies seeking to protect assets and mitigate liabilities.

In this comprehensive guide, we will explore the formation of SPVs at ADGM, their unique features, benefits, and the process of setting up one for your business.

Understanding ADGM SPVs

A Special Purpose Vehicle (SPV) is a legally distinct entity created to isolate financial risks. It is typically formed to hold a specific asset or group of assets while limiting the exposure of the parent company to the liabilities associated with those assets. In essence, SPVs act as passive holding companies and are often used in securitization, asset transfer, and joint ventures. While SPVs are highly flexible, they cannot conduct operational business or employ staff directly. Instead, they serve as a structure for managing specific projects or transactions.

Common Uses of SPVs in ADGM

The versatility of SPVs in ADGM makes them an excellent choice for various purposes. Here are some common scenarios where SPVs are employed:

•  Securitization:By forming an SPV and pooling loans into marketable securities, companies can transfer the associated risks to the SPV. This process shields the originating company from potential financial issues arising from those loans.
• Real Estate Investment: SPVs are frequently used to compartmentalize risks associated with individual real estate projects. This structure ensures that any liabilities from a real estate venture are confined to the SPV itself.
• Asset Transfer: Companies use SPVs to facilitate the seamless transfer of assets, protecting them from liabilities.
• Intellectual Property (IP): Placing intellectual property rights within an SPV helps safeguard the IP while allowing companies to enter into licensing agreements or raise funds without exposing their core operations to risk.

Each of these uses reflects the primary function of SPVs—to isolate risk while providing a secure structure for specific financial transactions or investments.

Features of ADGM SPVs

ADGM SPVs stand out for several key reasons, making them highly attractive to both local and international businesses. Some of the distinctive features include:

• Separate Legal Personality: An SPV in ADGM is an independent legal entity, meaning that any claims from creditors are limited to the SPV’s assets. This ensures that the parent company or related companies are not held liable for the SPV’s obligations.
• Fast Registration Process: ADGM offers a streamlined and efficient registration process for SPVs, allowing businesses to set up quickly.
• ADGM Companies Regulations 2020: SPVs in ADGM are governed by the 2020 Companies Regulations, ensuring consistency with other corporate vehicles operating within the free zone.
• No Withholding Tax: ADGM’s tax regime is highly favorable, with no withholding tax imposed on SPVs, further enhancing their appeal to investors.
• No Physical Office Requirement: Unlike many other jurisdictions, ADGM does not require SPVs to maintain a physical office, significantly reducing operational costs.
• Global Asset Holding: ADGM SPVs have the legal capacity to hold assets not just within the UAE, but globally, offering flexibility for multinational corporations.

Benefits of Forming an SPV in ADGM

The advantages of forming an SPV at ADGM go beyond the basic features. Here’s why ADGM is one of the top choices for establishing an SPV:

• Common Law Jurisdiction: ADGM operates under English common law, providing a familiar legal framework for international investors and offering greater legal certainty.
• Flexible Corporate Structures: SPVs can be structured as a Private Limited Company or a Restricted Scope Company, depending on the level of disclosure and corporate governance required.
• No Document Attestation: Unlike many jurisdictions that require attestation of documents, ADGM has simplified the process by removing this requirement.
• Independent Courts: ADGM has its own independent court system, which provides impartial and efficient dispute resolution based on international best practices.
• Streamlined Corporate Governance: The regulatory framework at ADGM is designed to encourage business formation while ensuring a robust system of corporate governance.

These benefits make ADGM one of the most attractive jurisdictions in the region for setting up an SPV, offering a high degree of flexibility, efficiency, and legal security.

Restricted Scope Company: A Unique Offering

For businesses seeking limited public disclosure, ADGM offers the option of incorporating a Restricted Scope Company. This structure allows businesses to keep certain information private while still meeting ADGM’s regulatory requirements. A Restricted Scope Company can be established under the following conditions:

• As a subsidiary of a company that prepares and publishes group accounts.
• As a subsidiary of a company formed by Emiri Decree.
• As a subsidiary of a SingleFamily Office.

This unique structure provides additional flexibility for businesses that want to limit their public exposure while operating within ADGM’s legal framework.

The Nexus Requirement for ADGM SPVs

A key aspect of forming an SPV in ADGM is demonstrating a nexus to the UAE or the broader GCC region. This can be shown in several ways:

• The SPV is owned or controlled by a private company, family, or individual based in the UAE or GCC.
• The SPV holds assets within the UAE or GCC region.
• The SPV facilitates transactions or provides an economic benefit to the UAE.
• The SPV issues securities that are listed on a recognized exchange, such as those under the Financial Service Regulatory Authority (FSRA).

This nexus requirement ensures that SPVs in ADGM are contributing to the regional economy, whether through asset holdings, financial transactions, or broader economic benefits.

Costs of Setting Up an SPV in ADGM

The costs associated with setting up an SPV in ADGM are relatively affordable, especially given the advantages of the jurisdiction. Here’s a breakdown of the key fees:

Licensing Fee: USD 1,600 (onetime setup fee).
Renewal Fee: USD 1,200 (payable from the second year onwards).

These costs make ADGM a highly competitive option for businesses seeking to establish an SPV in a global financial hub.

Required Documents for Formation of SPVs at ADGM

Setting up an SPV in ADGM requires a few essential documents, including:

• Articles of Association (AoA).
• Registered Office Address.
• Resolution of Board of Directors or Shareholders.
• Passport, Visa, Emirates ID (for UAE nationals) of each authorized signatory, director, shareholder, and beneficial owner.

The process is straightforward, and since it’s entirely online, businesses can establish an SPV without the need to be physically present in the UAE.

Online Application Process

The online application process for forming an SPV in ADGM is designed to be quick and efficient. Applicants can complete the entire process from anywhere in the world, making ADGM an ideal choice for international businesses looking for a hasslefree setup.

Conclusion

Forming a Special Purpose Vehicle (SPV) at ADGM offers a wide range of benefits, from legal flexibility and asset protection to favorable tax conditions and global asset holding. Whether you’re looking to securitize assets, invest in real estate, or protect intellectual property, ADGM provides the ideal environment for establishing an SPV. With a streamlined setup process, affordable fees, and robust legal protections, businesses of all sizes can benefit from this dynamic financial hub.