Monthly Insight: Is your company operating in the right jurisdiction?

Is your company operating in the right jurisdiction?

by Daniel Hague

For many business owners, there may come a time when the jurisdiction or environment in which they operate in is no longer favorable or attractive. This could be due to a change in regulations introduced by a newly elected political party; or the sudden on-set of war or conflict. Or it could be something as simple as wanting to be closer to key clients; or relocate somewhere providing a better standard of living.

Whatever the reason, the UAE usually finds itself on the list of potential locations. This is generally due to the (largely) tax-free regime here, which is free of all personal and corporate taxes with only a 5% VAT introduced at the start of 2018. The UAE is located in a developed economy with a sophisticated banking and financial services sector and trading hub, stemming from the world’s busiest airport – Dubai International Airport – and the largest marine terminal in the Middle East – Jebel Ali Port.

When you combine these factors with a stable political climate and pro-business operating environment, it is no surprise that that the UAE issued 532,000 business licenses by September of 2018, representing a 9% increase over the same time period in 2017.

While there are plenty of options for setting up new companies in the UAE, one option which is often overlooked or even unknown to many, is corporate migration.

So, what is corporate migration?

By definition, corporate migration (also known as corporate redomiciliation) is the process of a company shifting its place of incorporation to a new jurisdiction while preserving the same legal entity.

What this means is that a company is able to maintain their brand, history and existing contractual agreements with clients while moving to, and benefiting from, a more favorable operating environment.

Why would someone consider Corporate Migration?

Obviously, the usual driving factors for corporate migration are the tax-free environment mentioned above. However, for anyone unfamiliar with the UAE, there are many other interesting factors which should be considered when doing business here.

First of all, many of our clients who originally came to the UAE for ‘tax’ reasons, quickly learned that once located here, there can be huge demand for their products or services locally. Without having a physical presence or local business partner, the UAE can be a very difficult market to penetrate and do business with successfully.

Further to this, the UAE is perfectly positioned for international business and you can easily communicate with both the Far-East and West all within a regular business day. So even if you do not envisage the UAE to be a key market for your business, you could still migrate here, benefit from the favorable environment and continue to do business on an international scale.

Similar to this, we have witnessed many businesses make use of the favorable operating environment and strategic location of the UAE to serve as a regional hub for doing business in the neighboring markets of Africa, the wider Middle East or South Asia. The UAE offers an ever-expanding range of corporate structures and vehicles within both regulated and non-regulated operating environments which are simply not available in most of the aforementioned jurisdictions. The UAE has also recently introduced asset protections tools such as Trusts, Foundations and Special-Purpose-Vehicles (SPV’s) located in the financial centers of Dubai and Abu Dhabi (the DIFC and ADGM) and are constantly innovating their corporate structure toolbox.

Likewise, in many of these regions, political uncertainty or currency fluctuations still pose a major threat to business. The UAE provides a safe and politically-stable environment which also offers financial and monetary stability as well. Further to this, given the UAE’s position as a regional financial center, it should come as no surprise that the banking sector is stable and mature while also providing ample credit facilities and trade finance.

Plenty of Options Available in the UAE

In recent years, the range of options available for corporate migration in the UAE has grown significantly. Foreign businesses can now migrate to the UAE through a Free Zone Company, as an Offshore IBC company, through UAE mainland and most recently as an SPV in ADGM.

Certain Free Zones also allow the possibility to migrate an offshore entity to a Free Zone as a way of transforming their corporate structure. This is provided that they have been operational for more than 2 years and can submit audited financial statements. In this process, the company will lose its “offshore” status and instead adopt the features of an ordinary Free Zone company.

In our experience, this can be very useful for any businesses who may have outgrown the limited operating environment found in offshore jurisdictions. Furthermore, as banks place more stringent controls and compliance rules upon offshore havens and entities, the ability to migrate and transform into a fully-operational Free Zone entity can provide access to a more favorable banking environment.

What are the next steps?

Provided you can demonstrate that your company has a track record complying with the statutory requirements in the home jurisdiction and will also comply with the authorities in the UAE then your company will usually be eligible for corporate migration. It is also vital that the home authority is able to provide a provisional approval or no-objection letter confirming that the company is transferring to the authority here in the UAE. Without this confirmation, the UAE authorities will be unable to process the migration, so it is imperative that you consult with an experienced advisor.

Should you meet these requirements and be curious about the possibility of corporate migration for your business, why not reach out to us to arrange an initial, private consultation to discuss the potential options?

You may just find out that there are more benefits than you think!

 

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