Dubai is known as a top international financial centre. Because of this, many businesses want to create a special purpose vehicle (SPV) here. This guide helps you understand how to set up an SPV in Dubai. It covers what you need to know to make this an easy and rewarding choice. You will learn about the legal framework, the benefits, and how SPVs work in Dubai. This information is important for anyone thinking about this business setup.

What is a Special Purpose Vehicle (SPV)?

A Special Purpose Vehicle, or SPV, is essentially a holding company created for a specific and often temporary purpose. It’s also known as a Special Purpose Company (SPC) or Special Purpose Entity (SPE). In the UAE, SPVs are commonly registered within special financial jurisdictions like the Abu Dhabi Global Market (ADGM), RAK International Corporate Centre (RAK ICC), or the Dubai International Financial Centre (DIFC).

An SPV acts as a separate legal entity that’s typically used to carry out a particular business activity or hold specific assets. Because it can isolate its own assets and liabilities, an SPV is considered “bankruptcy-resistant”—meaning that if the parent company runs into financial trouble, the SPV’s assets remain protected and unaffected. SPVs maintain their own separate balance sheets, giving them distinct legal and financial identities apart from their parent companies.

What SPVs Are Used For

SPVs have a variety of applications, particularly in finance and investment, where they help companies limit financial risk, raise funds, and manage assets separately. Here are some common uses:

Real Estate Investment: SPVs can hold property deeds, making them useful for managing real estate portfolios. They provide a layer of protection for these assets, so if the parent company faces financial issues, the real estate held in the SPV may be shielded from creditors or foreclosure.

Securitisation: SPVs are often used to turn assets into securities, such as loans or other receivables. They issue debt secured by these assets, allowing investors to receive payments against this debt while keeping the assets themselves separate from the parent company’s other operations.

Capital Raising: SPVs can raise capital on their own, relying on the assets they hold rather than the financial status or credit of the parent company. This can be particularly helpful if the parent company has a lower credit rating or wants to raise funds for a new venture.

Intellectual Property Management: SPVs are commonly used to hold and manage intellectual property (IP) assets, such as patents or trademarks. By holding IP separately, companies can license the IP or raise funds against it independently, without affecting the parent company’s financial structure.

Risk Management in Partnerships: SPVs can be used for joint ventures, allowing companies to collaborate on projects without exposing each party to the full financial risks typically associated with such partnerships.

Regulatory and Tax Efficiency: SPVs can sometimes be established in jurisdictions with favorable regulatory or tax environments, making them an efficient tool for optimizing a company’s overall business structure.

SPVs are versatile tools that allow companies to manage specific assets, reduce exposure to risk, and gain flexibility for various strategic purposes. They’re particularly useful for businesses needing a structure to isolate and protect assets from broader business risks.

Step-by-Step Guide to Establishing Your SPV in Dubai

Establishing an SPV in Dubai is a regulated process. It requires careful attention and following specific steps. This guide gives you a simple overview of each step to help you feel confident as you move forward.

• Step 1: Defining the Specific Purpose: Clearly state the business activity or goal for creating the SPV. This purpose will guide your future choices and legal needs.
• Step 2: Choosing a Name: Pick a name that follows UAE naming rules. Make sure it is not already taken and shows what your SPV will do.
• Step 3: Drafting the Memorandum and Articles of Association: Hire legal experts to help you create a Memorandum of Association (MOA) and Articles of Association (AOA). These documents will explain the SPV’s purpose, share capital, and the rights and responsibilities of its shareholders.

By understanding these key steps, you can move through the application process smoothly. This will help you build a successful SPV in Dubai.

Step 1: Choosing the Right Jurisdiction and Free Zone

Dubai has several places where you can set up a Special Purpose Vehicle (SPV), each designed for different business needs. The best choice among onshore, free zone, and offshore areas depends on what your SPV will do, any tax matters, and how much flexibility you want in running it.

Free zones, such as the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), are great for SPVs. They allow 100% ownership by foreigners and offer tax perks and their own legal systems. The DIFC follows a common law jurisdiction, which many international businesses know. It also has a solid legal and regulatory structure for financial services.

When selecting a place for your SPV, think about what assets it will hold, the legal rules there, what financial and professional services are available, and how easy it is to do business. Making sure everything aligns with your needs will help your SPV succeed in the long run.

Step 2: Drafting the SPV’s Memorandum of Association

The Memorandum of Association (MOA) is a key legal document. It shows that a special purpose entity (SPV) exists. According to common law, the MOA acts like a charter. It outlines the SPV’s goals, powers, and limits. The MOA’s main job is to define how the SPV interacts with others, especially its creditors and stakeholders.

Having a clear MOA is very important. It helps to avoid confusion about what the SPV can do. The MOA needs to clearly state the SPV’s purpose, the kinds of assets it can own, and the business it can conduct. For example, if the SPV is meant to hold real estate, the MOA should say that clearly.

In summary, the MOA is the foundation of the SPV’s legal existence. It ensures openness and clarity for all parties involved. By defining what the SPV can and cannot do, the MOA helps build trust and makes business interactions easier within the legal framework.

In conclusion, setting up a Special Purpose Vehicle (SPV) in Dubai has many benefits. This is because of the good rules and great location. You can succeed in setting up your SPV by knowing the legal and regulatory needs, picking the right area, and following the steps needed. It’s important to manage your SPV well. You should think about financial and tax matters and follow all the rules for it to work smoothly. Dubai’s strong financial scene and welcoming policies for investors make it a great place for SPVs. If you want to start an SPV in Dubai, make sure you have all the information you need. It’s also a good idea to get help from experts to make the process easy.

Also Read: Special Purpose Vehicles (SPVs): An In-Depth Overview