Let’s talk about ADGM – the Abu Dhabi Global Market structure

We have been working with more and more International Investors recently. So we have had many conversations about structures and the advantages of certain jurisdictions. This week someone asked me about the ADGM. Interestingly, I wrote about United Arab Emirates (UAE) Free Trade Zones (FTZ) a few weeks ago here -

https://www.mooresrowland.tax/2021/03/incorporating-in-the-united-arab-emirates-or-the-uae-including-dubai.html

In that article we tried to compared the 45 FTZs which includes those in Abu Dhabi. Obviously it is just a superficial overview but we could not find anything like it on the web so we believe it presents real value. What I wanted to do now, is take a deeper dive into the ADGM and then compare it to the more popular Cayman structures.

Here we go

What is ADGM?

The Abu Dhabi Global Market (ADGM) is an International Financial Free Zone where for the first time English Common Law is directly applied in the Middle East.

It is governed by three independent authorities – the Registration Authority (RA), the Financial Services Regulatory Authority (FSRA) and ADGM Courts – making it one of the of the most trusted financial centres in the region.

Benefits of English common law

There are several considerable benefits to operating under English Common Law. Its principles are familiar to the business world and have been previously tested to a high standard.

Operating under English Common Law also offers a level of certainty to proceedings and it is backed by English courts.

Typical uses of ADGM SPV

In simple terms, Special Purpose Vehicles are passive holding companies established for the purpose of isolating financial and legal risk by ring-fencing certain assets and liabilities.

ADGM’s SPV is suited to a wide range of businesses and industries such as wealth management, financing, leasing, and also to individual investors.

There are numerous common uses, including:

  • Holding Shares of Operating Companies
  • Holding Real Estate Investments
  • Holding Intellectual Property
  • Securitization of Loans
  • Securing Investments
  • Risk Sharing through Joint Ventures
  • Raising Capital independent to Parent Firm

Benefits of ADGM SPV

ADGM’s SPVs offers business owners and asset holders greater freedom while allowing for separation of financial and legal risk.

Its key feature, and perhaps its biggest benefit, is that an SPV holds a completely separate legal personality from its owner/s.

SPVs are a cost-effective route to UAE company ownership, requiring no minimum share capital, a minimum requirement of just one shareholder and one director, and no need to take on office space or premises.

Benefits of ADGM SPVs include:

  • Based on English Common Law
  • No restrictions on nationality of ownership
  • No physical office space requirement
  • No minimum share capital
  • No maximum number of shares and shareholders
  • Minimum requirement of only one shareholder and one director
  • Ability to customize Articles of Association
  • UAE Tax Residency and access to UAE Double Tax Treaty Network
  • Migration and Continuation of existing corporate entities
  • No attestation of documents
  • Multiple classes of shares

SPV Incorporation process

The UAE company formation process is built with simplicity in mind. And the SPV incorporation process is no different. However, as is the case when starting any business in this part of the world, it does require a level of expert knowledge.

With the assistance of a company formation expert, the ADGM SVP incorporation process consists of just four simple steps:

  1. Initial processing – KYC, Incorporation Documents and Consent Letter by Registered Office Provider
  2. Submit your application via the official portal
  3. ADGM application review and Abu Dhabi Immigration clearance of Authorized Signatories
  4. Completion and licensed received

When making your application with the help of an expert, the whole process usually takes just 10 working days.

What is the cost of an ADGM SPV license

The cost of the ADGM SPV license comprises two parts. First there is the ADGM fee which totals USD 1,600 in the first year and USD 1,200 in the second year.

Then there is the cost of the ADGM Office Address and the professional services fee, this is charged together at USD 1,400 per year.

This puts the total cost of ADGM SPV license at USD 3,000 in the first year and USD 2,600 in the second year.

Now having said all that, the reality is that 75% or more of the world's fund structures are probably still done using the Caymans. I wrote about the Cayman previously here -

https://www.mooresrowland.tax/2020/10/2-ways-in-which-cayman-funds-legally-avoid-paying-taxes.html

So why consider ADGM which appears to just be a recent imitation of the Cayman? The Cayman Islands is an established jurisdiction under British rule with a rich body of both legislation and legal precedents.

For those who do consider ADGM over Cayman? Both appear to have similar substance requirements but some of the advantages of ADGM include the flexibility of structures available, reduced costs, options for Islamic-themed funds and Sharia compliance.

Regardless, no one size fits all so get professional advice.

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