DIFC’s new Prescribed Companies regime! Is this a game changer for corporate structuring and investments?

The Dubai International Financial Centre (DIFC) has rolled out major updates to its Prescribed Company Regulations, effective from July 15, 2024. These updates stem from a thorough consultation process aimed at enhancing the regulatory framework to better cater to businesses and investors, all while preserving the cost-effective and flexible environment for which the DIFC is renowned. The 2024 regulations introduce key changes, including expanded eligibility criteria and new requirements for qualifying applicants and purposes.

What is a Prescribed Company (PC) in DIFC?

Prescribed Companies (PC) are passive holding entities designed to ring-fence and isolate assets and liabilities from financial and legal risks. They are commonly used for holding a diverse range of assets, such as real estate, private and public shares and investments, aviation and maritime assets, and for facilitating structured financing.

Let’s explore what’s new in DIFC Prescribed Companies Regulation.

New PC Regulations Unveiled!

Effective from July 15, 2024, the DIFC has introduced significant updates to its PC Regulations. One among them is the expansion of the eligibility criteria for Prescribed Companies. Previously, eligibility was restricted to specific types of entities (qualifying applicants) and activities (qualifying purposes).

To incorporate or continue a Prescribed Company in the DIFC, applicants must now satisfy one of the following criteria:

1. The Prescribed Company is controlled by one or more:

?a) GCC Persons.

?b) Registered Persons.

?c) Authorized Firms.

2. The Prescribed Company is established or continued in the DIFC for the purpose of holding legal title to or controlling one or more GCC Registrable Assets.

3. The proposed Prescribed Company is established or continued in the DIFC for a Qualifying Purpose; or

4. The Prescribed Company established or continued in the DIFC has a director appointed from a DFSA-registered Corporate Service Provider

How Does a CSP Facilitate the Establishment of a Prescribed Company?

Any individual or corporate entity that does not qualify for a Prescribed Company under the qualifying requirements can still establish one, regardless of their country of residence. This is possible if the PC appoints a director who is an employee of a DFSA-regulated CSP. This CSP must also have an agreement with the DIFC Registrar of Companies to undertake specific compliance and AML functions on behalf of the PC.

Key Changes from the Old PC Regime

Previously, the PC regime restricted eligibility to entities with a strong DIFC nexus or those involved in specific qualifying activities, limiting the product’s appeal to the existing DIFC client base. The new regulations have significantly expanded the eligibility criteria, allowing for the formation of PCs under broader circumstances.

DIFC believes these changes will expand the appeal of this vehicle to a global investor base while maintaining necessary ties to the DIFC and GCC. To accommodate potential increased demand, DIFC is enhancing its AML procedures and risk management framework.

What Happens to Existing PCs That Fall Outside the New Regime?

Existing PCs will be restricted to their designated purpose as holding companies, prohibiting employment. This ensures their function as pure holding vehicles. PCs that no longer align with these criteria will benefit from transitional arrangements and a new commercial package offering continued licensing advantages similar to the previous regime. The package, named "Active Enterprise," provides flexible options and reduced fees for qualifying applicants seeking alternative structures with the option to have employees.

Active Enterprises in DIFC

The DIFC Active Enterprise offers a unique and attractive company structure for qualified applicants seeking flexibility and opportunity. Unlike some DIFC options, Active Enterprises allows you to hire employees, making them ideal for businesses with operational needs. This structure caters to a diverse range of industries, from real estate and agriculture to healthcare management. Whether you choose a Holding Company, Managing Office, or Proprietary Investment Company setup, the DIFC Active Enterprise empowers you to run your business with the freedom and benefits associated with the DIFC free zone.

What makes Active Enterprises appealing?

·??????? Option to have employees: In the case that Active Enterprise or its affiliate has an office in the DIFC.

·??????? Reduced licensing fees:? USD 100 Application Fee (one time) and an annual commercial license fee of USD 1000 (Data protection fees USD 750 - if applicable).

·??????? Flexible registered address: An Active Enterprise can have its own DIFC office space, co-working desk, share office space with its DIFC affiliate or, if the entity has no employees, use an appointed CSP’s registered address in DIFC.

·??????? Common law jurisdiction with independent DIFC Courts

·??????? Quick and easy, fully digital registration process: In-principal approval may be granted within three business days from the application submission.

·??????? No attestation is required for corporate documents.

·??????? Globally competitive and attractive tax regime.

·??????? Zero currency restrictions and 100% foreign ownership.

·??????? Zero restrictions on capital repatriation.

Why a Prescribed Company in DIFC?

?DIFC is Ready. Are You?

With the introduction of this new PC regime, DIFC aims to balance requiring substantive economic activity and providing access to flexible corporate structures for legitimate purposes. In the new UAE Corporate Tax era, which addresses substance concerns, the DIFC believes that expanding the PC regime is timely and beneficial.

At MS, we believe this move from the DIFC will reenergize the wealth and asset-holding of individuals and corporate entities. With the recent amendments, the once traditionally closed PC model is now opening its access to the wider group. This for sure paves the way for DIFC to become a hub of key industry movers and makers.