A Holding Company is a business structure used to own the outstanding stock of other companies. The Holding Company does not typically produce any products or deliver services. It only controls the group of related companies and manages their legal liabilities. Management can benefit from tax savings by forming a holding company in a tax haven like UAE.
How Business Owners Are Leveraging a Holding Company in UAE?
Business owners are always looking for ways to protect their business assets. They have developed many strategies over the year of business to keep them secure.
One of the most effective ways for unifying businesses that are into diverse sectors and activities is the formation of a holding company.
Holding Company in UAE will have 100% ownership of the subsidiary or it can be owning enough stocks or membership interests to control the subsidiary.
The Holding Companies are corporates or LLC Companies that do not indulge in any commercial trade activity. The subsidiaries of the holding company will be into a variety of business operations. They would be into manufacturing, selling, delivering services, selling real estate, owning intellectual property, etc.
How is a Holding Company Financed?
The Holding Company is responsible for deciding where to invest the money. It can also obtain the funds by selling equity shares of the subsidiaries to the public.
Also, the revenue earned by the subsidiaries is pumped into the holding company in the form of dividends, distributions, interest payments, rents, payments for back-office functions, and capital investment.
How is a Holding Company Used?
The holding company structure is used by businesses of all sizes and industries. Most of the publically traded Multi-national companies are holding companies.
It is not only for large businesses group that has multiple subsidiaries and company operating in various business sectors, but also for individuals and small companies too.
For example, an entrepreneur who wants to invest in real estate can register a company and buy the property in its name.
The company can be owned by a holding company and the business owner can incorporate new subsidiaries and keep all businesses distinct but unified under the holding company.
Advantages of a Holding Company
Here are a few advantages of registering a Holding Company in the UAE.
1. Liability Protection
It helps to protect the owner and the holding company from the liabilities of the subsidiary companies. Each subsidiary will be a separate legal identity with shareholders and management responsible for the business growth.
Hence, the holding company and other subsidiaries will have hedging in case one company has a downturn.
2. Control Assets for Less Money
The holding company in UAE can control the subsidiary without owning 100% of the shares or membership interest. Hence the cost of ownership of a subsidiary is lower for the holding company than acquiring the whole subsidiary’s ownership interest.
3. Lower Debt Financing Costs
The holding company has the greater financial strength and can obtain loans for a lower interest rate than the operating companies. Also when the business requires capital especially when it is a start-up, the holding company will provide support by distributing funds to the subsidiary.
4. Foster Innovation
The restructuring of the company into subsidiaries + a holding company is highly beneficial for the entrepreneur. It could help in routing the funds and channelize business growth without falling flat in case of anyone’s venture fails.
Also, it will help in creating breakthroughs from research and innovation on one hand when revenue generation businesses flourish on the other hand.
5. Better Control and Birds-Eye View
The holding company will have better management abilities as it is not focused on money-making or business operations but only on managing the subsidiary companies.
The subsidiary will have its management that reports the profits and business information to the holding company every month. So, the holding company will have a bird-eye view of what is happening across the subsidiary and take corrective actions quickly when needed.
Types of Holding Companies in UAE
In UAE, there are majorly two business jurisdictions that offer provisions for establishing a holding company, i.e.
- The Onshore or Mainland in UAE
- The Free Zones in UAE
Depending on the business structure, the holding company must appoint at least one director or a board director.
Can a Holding Company Purchase Properties in Dubai & RAK Emirate?
RAKICC Offshore has announced a partnership with RAK Municipality Department for enabling investors to purchase and register properties in the Emirate of Ras Al Khaimah. It has also provided an option for structuring the investments by the formation of a RAKICC Offshore Holding Company.
Also, the Dubai Land Department is accepting registration from RAKICC Offshore companies for freehold plots and properties as part of an MOU signed.
Investing in properties in the UAE through RAK ICC Holding Company (RAK ICC Holdco) has many benefits, such as:
- No Paid-up share capital and 100% profits repatriation
- Re-distribute assets to the holding company for tax purposes.
- Lower the withholding tax on income and capital gains.
- Ease of transfer when buying and selling properties.
- Greater privacy, with no shareholder details on the public register.
- Easy transfer of domiciliation or continuation.
As a shareholder in a RAK ICC Holding Company, you are also able to open a UAE bank account, allowing you to make and accept payments within the UAE, subject only to local taxes.
Requirements for Opening a Holding Company in UAE
To set up a holding company in UAE the company must follow the below requirements:
- Setting up a management board that will be in charge of the leadership and decision-making. A shareholder resolution needs to be made. (Aurion will assist you in this process)
- The Director Board should be formed with at least one director for each subsidiary firm
- Share Certificate representing the share capital and shareholding pattern for the holding company
- Passport copy and photographs of the directors and shareholder
- Business plan and subsidiary company details (Company documents, trade license, etc.)
So, in a nutshell, setting up a holding company helps the organization in many ways. A holding company has all benefits similar to a Free Zone/Mainland Company.
The entrepreneur will be the 100% owner of the Free Zone company. There are no restrictions on capital repatriation or employing foreign nationals.
There is no corporate tax or personal income tax, secure company ownership, and many more business benefits for the shareholders to secure their subsidiaries and share capital.
To know more about Opening a Holding Company in UAE, talk to our expert business consultants right away!
Contact Us: Aurion Business Consultants