The New DIFC Prescribed Company Regulations 2019

The DIFC Prescribed Company Regulations 2019 (PC Regulations), which have been expected since the DIFC announced it would be introducing such a regime on 30 June 2019, were enacted on 31 October 2019 (the Commencement Date). The PC Regulations replace the former DIFC Special Purpose Company (SPC) Regulations and the Intermediary Special Purpose Vehicle (I-SPV) Regime (together, the Previous Regulations) and expand the flexibility of the DIFC’s special purpose vehicle offerings.

Here are 10 things to know about the PC Regulations:

1. On the Commencement Date every SPC and I-SPV established under the Previous Regulations automatically became a Prescribed Company (PC) with the same name. A former SPC or I-SPV may, within 90 days of the Commencement Date, make a request to the Registrar to change its name to remove the words “SPC”, “Special Purpose Company”, “ISPV”, or “SPV” from its name and add “Limited” or “Ltd” (as required by the PC Regulations’ naming conventions) and the Registrar will register such change of name.
2. The PC Regulations allow for two types of PCs. The first are PCs controlled by one or more “Qualifying Applicants” (Qualifying Applicant PCs). The definition of Qualifying Applicant covers entities registered and/or physically present in the DIFC as funds (both DIFC-registered funds and foreign funds registered in any jurisdiction recognised by the DIFC as a “Recognised Jurisdiction”), authorised firms, family offices, fintech entities, foundations, government entities, holding companies, private trust companies, proprietary investment companies, or persons wholly owned by one or more of these categories of entities. This is a broader set of potential Qualifying Applicants than those allowed under the I-SPV Regime, which was limited to certain fund structures, holding companies, proprietary investment vehicles, and single family offices having a presence in the DIFC. Control in relation to a PC is defined to include a person’s ability to cause the affairs of the PC to be conducted in accordance with such person’s wishes, either as a result of holding shares or possession of voting power (directly or indirectly), or through powers conferred by the articles or other governing document of the PC. The licence of a Qualifying Applicant PC may include any activities permitted by the Registrar for a commercial licence in the DIFC.
3. The second category are PCs formed for a Qualifying Purposes (Qualifying Purpose PCs). As the name suggests these are entities established for a specific purpose, including structured finance transaction, aviation, crowdfunding, and family holding structures. Significantly, this definition has been expanded from the SPC Regulations which predominantly focused on structured finance transactions. The licence granted to a Qualifying Purpose PC will be limited to its designated Qualifying Purpose and ancillary activities thereto.
4. PCs may be used as special purpose vehicles to hold assets on behalf of a fund, but may not be used as a fund manager, trustee, or general partner of a fund or as funds themselves. They may also be authorised by the DFSA to provide financial services.
5. PCs are not subject to the requirements applicable to other entities under the DIFC’s laws to have operations in, or carry on business from, the DIFC.
6. Within one year of the Commencement Date, the PC Regulations require a PC Company to (a) file a Confirmation Statement prior to the next anniversary of its incorporation (which filing is required annually) in which it confirms compliance with the requirements of applicable laws, and confirms its status as a Qualifying Applicant PC or Qualifying Purpose PC; and (b) if it is a Qualifying Purpose PC, to amend its articles of association to limit its objects and activities as described in its licence.
7. A PC having its Qualifying Purpose designation as structured financing is required, at incorporation or continuation, to file a confirmation (to be repeated in each annual Confirmation Statement, as described above) by an initiator or director to the effect that such person is satisfied that the PC is not being used and will not be used to circumvent foreign ownership restrictions and foreign investor registration requirements or to avoid taxes, in the UAE or elsewhere.
8. The PC Regulations do not provide a minimum share capital requirement or a restriction on the number of shareholders (although a Qualifying Applicant PC must be controlled by one or more Qualifying Applicants). By contrast, the SPC Regulations previously required USD $100 as minimum share capital with a maximum of three shareholders.
9. A PC may use as its registered office that of its Qualifying Applicant (for a Qualifying Applicant PC) or of the person who established it (for a Qualifying Purpose PC), or of a corporate service provider appointed for such purpose.
10. Fees for PCs are as follows (all amounts are in USD):

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Abu Dhabi
Mark Gilligan

Dubai
Joanna Maria El Khoury