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The DIFC Prescribed Companies: Uses and Regulations

The DIFC Prescribed Companies: Uses and Regulations

Prescribed companies are one type of special corporate entity seen in Dubai International Financial Centre (DIFC), a free zone in UAE. Prescribed companies are considered as Private companies under DIFC companies law.

Prescribed companies are exempted from some requirements applicable to other private companies such as the requirement for audit and filing of accounts with DIFC Registrar of companies. Even incorporation and licensing fees are lower in case of DIFC companies and allowed to use DIFC registered offices or get a DIFC registered office through a corporate service provider.

Prescribed company regulations came into effect on 31st October, 2019 and since then more than 200 companies have already been established. DIFC offers high quality business infrastructure with low legal cost and other benefits such as 0% tax rates and 100% foreign ownership options. The Prescribed company regulations also provide a more flexible regime compared to the existing Special Purpose Companies (SPC) and the Intermediate Special Purpose Vehicles (ISPV), who are automatically converted to Prescribed companies.

Requirements for setting up a Prescribed Company

Before enactment of Prescribed Company regulations, an SPC activity was limited to structured financing and an ISPV could only be established by

  • A DIFC incorporated fund or a DFSA (Dubai Financial Services Authority) fund Manager.
  • An investment structure relating to a holding or a proprietary investment already established in DIFC.

The new rule, however allows a Prescribed Company to be controlled by one or more Qualifying Applicants or be formed and continued for a Qualifying Purpose.

Qualifying Applicants are entities with a physical presence in the DIFC requiring licensing by DIFC and/or DFSA. An entity can be any of the following

  • An Authorized Firm
  • A family office
  • A fund
  • A fintech entity
  • Foundation
  • Government Entity
  • Holding Company
  • Private Trust company
  • Proprietary Investment Company
  • A person wholly owned by one or more of the forgoing qualifying applicants. The DIFC registrar needs to be satisfied that they will control the Prescribed Company.

The DIFC Licensed Authorized firm of a Qualifying Applicant of a Prescribed Company may carry out activities permitted by the DIFC Registrar of companies in accordance with the categories of commercial licenses available in the DIFC.

Control is the Power of a person to secure by means of the holding of shares or the possession of voting powers, directly or indirectly; or as a result of any powers conferred by the Articles of Association or other document regulating the Prescribed Company or any other body corporate.

Qualifying Purpose is considered as

  • An aviation structure
  • A Crowdfunding structure
  • A Family owned structure
  • A Structured financing

Key features and Advantages of new Regulations

A Prescribed company

  • Can be used by a fund manager, trustee or the general partner as a SPV to hold property on behalf of a domestic or foreign fund domiciled in a recognized jurisdiction
  • Can not be used to be the fund manager, trustee or the general partner of a domestic or foreign fund that is domiciled in a Recognized jurisdiction or as the fund itself.

The Advantages are

  • A Prescribed company has the advantage of lower incorporation and renewal cost.
  • Reduced compliance obligations and no requirement to Audit and file their accounts.
  • More scope for office space savings
  • Expanded scope of use by funds and other firms with a license from authorized regulatory body
  • Prescribed company can be incorporated by a fund manager, a trustee or general partner which was not possible under SPC or ISPV
  • CSP appointment is optional

Takeaways

In the event of not meeting the requirements outlined in the Regulations, the DIFC Registrar may, after following certain procedures, revoke the status as a Prescribed Company.

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