DIFC revises prescribed company regime to extend accessibility to international businesses

The newly enhanced regulations (13-page PDF/321KB) took effect on 15 July. They considerably boost accessibility to the PC structure in the free zone to an international base of applicants whilst still ensuring that a crucial link between the DIFC and Gulf Cooperation Council (GCC) is maintained. It is the third time the authority has updated the regime to broaden the potential user base since it was first introduced in 2019.

Prescribed companies are a type of corporate vehicle available in the DIFC, commonly used as a holding company to isolate and protect assets and liabilities from financial and legal risk. They benefit from lower incorporation and licensing fees, and are exempt from certain regulatory requirements, which would ordinarily be applied to private companies under the financial zone’s companies law. Businesses and investors typically use this corporate vehicle to hold a variety of assets such as real estate, private and public shares and investments, aviation and maritime structures in addition to structured financing.

Prior to the latest revision, the eligibility criteria for establishing a PC were much narrower and limited to qualifying applicants. Under the previous regime, qualified applicants included those with an existing connection to DIFC or businesses carrying out qualifying purposes, such as aviation structure, crowdfunding structure, family holding structure, and structured finance.

The new rules are set to address the limitations of the previous regime, which made it challenging for a diverse range of businesses and individuals to utilise the full spectrum of advantages offered by the DIFC. The updated regulations have removed certain qualification requirements and simplified some requirements for establishing a PC.

International businesses eligible for the new regime

By removing the requirement of being a qualifying applicant, the new regime permits a broader range of companies to establish a PC without requiring individuals to have an established presence in or nexus with the DIFC, and while lowering incorporation and licensing fees. 

Under the new regulations, in order to incorporate or continue operating a PC in the DIFC, an applicant must meet certain criteria.

They must be controlled by one or more of the following:

• GCC citizens or entities controlled by GCC citizens; or
• authorised firms; or
• DIFC-registered persons other than a PC or a non-profit incorporated organisation (NPIO), in line with the existing regime.

The applicant should be established or continued for the primary purpose of holding legal title to, or controlling, one or more GCC registrable assets. It must be established or continued for a qualifying purpose, in line with the existing regime. It needs to be established by any person, natural or corporate, who is a resident anywhere in the world, provided that the PC appoints a director who is a corporate service provider (CSP) registered with the Dubai Financial Services Authority (DFSA), and that CSP has an arrangement with the DIFC Registrar of Companies to carry out certain compliance and AML functions on behalf of the PC.

In essence, the new regime allows a PC to be set up by a range of applicants for a qualifying purpose to hold GCC-registerable assets. International businesses and individuals are able to establish a PC by appointing a CSP which is registered at the DIFC. 

Additional updates to the regulations

In addition to the changes in eligibility requirements, the DIFC’s risk management methodology as well as its anti-money laundering procedures are also being updated to continuously deal with an expected increase in demand.

The amended regulations also offer a grace period of six months from the date of the PC license for the PC to fulfil the qualifying requirements. The changes address the practical issues in certain transactions, where it may be necessary for the structure of the PC to be set up before fulfilling the relevant qualifying requirements.

There have also been other important amendments to the regulation which provide that a PC must only be used as a holding company vehicle or for its qualifying purpose and may not employ any employees. This is to ensure that the PCs are used as true holding companies and not as operational entities. 

Commercial package

The new regulations not only seek to streamline and widen the PC regime, but also provide a new Active Enterprise Commercial Package framework (11-page PDF/220KB) (the commercial package), which will allow more organisations to register or maintain a PC in the DIFC.

Existing PCs can opt for the commercial package option, as a suitable alternative to continuing to meet the qualifying requirements and other operational requirements under the new PC regulations.

The commercial package has been designed to capture existing PCs that fall outside of the new regime as well as to provide further structuring options with reduced fees and flexible licensing arrangements to applicants that meet certain criteria.

A distinct difference between the PC structure and the commercial package option is that companies using the commercial package option are permitted to hire employees. In order to exercise this option, the entity must be set up as a private company to conduct at least one of the business activities below:

• to act as a holding company;
• to manage offices; and
• to conduct proprietary investment activities.

They must also be controlled by one or more of the entities:

• a DIFC registered entity that is not a non-profit incorporated organisation (NPIO), foundation or a PC; or
• an affiliate of a DIFC registered entity that is not a NPIO, foundation or a PC; or
• a shareholder or an ultimate beneficial owner that controls a DIFC registered entity that is not a NPIO, foundation or a PC; or
• a government entity; or
• a family-operate business.

Co-written by Millie Hubbard of Pinsent Masons.