The New DIFC Prescribed Company Regulations

The Prescribed Company Regulations 2019 of the Dubai International Financial Centre (DIFC) has been abrogated and replaced by the DIFC Prescribed Company Regulations 2024, effective from 15 July 2024 (PCR). As a result, the PCR has effectively broadened the eligibility criteria for Prescribed Companies in the DIFC, to include governance of special purpose style vehicles (i.e. special purposes companies and intermediate special purpose vehicles), which can be incorporated within the DIFC.

 

What is a Prescribed Company?

A Prescribed Company is classified as a private company limited by shares and is commonly utilized as a holding entity within a group of companies, typically as a strategy for ring-fencing assets or liabilities. These companies offer certain corporate benefits such as (i) reduced incorporation and licensing fees; and (ii) reduced regulatory and compliance burdens, such as an exemption from filing annual audited accounts.

 

Key Changes

The notable change following amendment of the PCR relates to the eligibility criteria for registration of a Prescribed Company. Prior to the amendment, eligibility was limited to specific qualifying applicants (Qualifying Applicants) and purposes (Qualifying Purposes). The PCR expand these criteria to include a broader range of applicants and purposes:

1. Qualifying Applicants: Under the previous regime, a Prescribed Company could be established in the DIFC if it is: (i) controlled by one or more GCC citizens or entities controlled by GCC citizens; (ii) an authorised firm; or (iii) a DIFC registered person (other than a Prescribed Company or an Non-Profit Incorporated Organisation). This is now expanded to include a new qualifying limb whereby a Prescribed Company can be established by any natural person or corporate entity (without meeting the nexus limbs under (i) to (iii) above), provided that the Prescribed Company appoints a director who is an employee of a Dubai Financial Services Authority registered Company Service Provider (CSP). The CSP should have an existing arrangement with the DIFC Registrar confirming it has the authority to carry out certain compliance and AML functions on behalf of the Prescribed Company (Qualifying Applicant).
2. Qualifying Purposes: Prescribed Companies can now be established in the DIFC for the purpose of holding legal title to, or controlling, one or more GCC registrable assets (i.e. an asset that is registered with a GCC authority). This broadens the scope for satisfying the Qualifying Purpose criteria by incorporating a GCC nexus to satisfy the purpose requirement (Qualifying Purpose).

Other than expanding the criteria for registering a Prescribed Company, the DIFC has also introduced an operational restriction. A Prescribed Company will not be permitted to hire any employees, ensuring that the function of a Prescribed Company is limited to only acting under its Qualifying Purposes or acting as a holding company. Similarly, no commercial activities may be performed by the Prescribed Company.

 

ADGM SPV Regulations

The Abu Dhabi Global Market (ADGM) offers a similar corporate vehicle to a DIFC Prescribed Company, in the form of a Special Purpose Vehicle (SPV). By way of comparison, below are the key similarities and differences between an ADGM SPV and a DIFC Prescribed Company.

 

Key Similarities

• Prescribed Companies and SPVs are passive company structures that are established for the purpose of ring-fencing certain assets and liabilities from financial and legal risk.
• Both structures operate from within common law based jurisdictions.
• The licensing and registration costs associated with SPVs and Prescribed Companies are roughly USD2,000 (excluding any leasing or CSP fees).
• Both SPVs and Prescribed Companies can be registered by demonstrating a nexus to the UAE or GCC through ownership of assets in those locations.

 

Key Differences

Legal Structure:

• Prescribed Companies are incorporated as private companies limited by shares.
• SPVs can be incorporated as either a (i) private company limited by shares or (ii) restricted scope company (RSCs). RSC's are entitled to limited public disclosure.

CSP Requirement:

• DIFC Prescribed Companies are not obligated to appoint a CSP.
• Non-exempt SPVs in ADGM must appoint a CSP (i.e. if the SPA is not formed by decree or federal law).

Office Leasing:

• Prescribed Companies must lease an office space within the DIFC as part of their registration or may elect to appoint a CSP to utilise its office as a registered address. The DIFC will generally also allow a Prescribed Company to share office space with a DIFC-registered group entity, where common ownership can be demonstrated.
• ADGM SPVs are not permitted to have an office space and must instead utilize the appointed CSP's office as a registered address.

 

Conclusion

The registration of a DIFC Prescribed Company has become a more attractive prospect as a result of the changes to the PCR. By expanding on the criteria for registration, the DIFC has made Prescribed Companies more accessible and flexible to those seeking to utilize ownership of GCC-based assets as the purpose of registration. These changes position the DIFC as an alternative to the ADGM, offering new opportunities for growth and innovation within the DIFC framework.