SPVs are special-purpose companies or entities formed to fulfill a specific object for a limited time. Its nature is independent of the parent company by which it is formed and has its legal status, assets, liabilities, and even separate accounts. This acts as a shield for the parent company and prevents it from bankruptcy when a large project goes unprofitable.
DIFC launched a new regime for Intermediate SPVs in 2016. The aim was to deliver a cost-effective and time-bounded structure to streamline the investments of prominent investors. The term intermediate implies that the entity is a transitional company as a part of a wider structure and is neither the primary holding nor it is the operating entity.
Earlier the SPVs in DIFC, allowed application only to structured financing transactions, however, its increasing popularity led to the emergence of Intermediate SPVs in 2016 which provide alternate financing structures. The application process for Intermediate SPVs is comparatively cheaper. Although several requirements for the application process are easier to comply with, however, the business plan needs to include a few regulatory confirmations before making an application. The use of Intermediate SPV has been limited for funds or a holding vehicle, or for proprietary investment purposes.
The incorporation of an Intermediate SPV requires that the applicant must be one of the following to be a ‘Qualifying Applicant’:
- Collective investment schemes established in the DIFC or outside the DIFC and regulated by the Dubai Financial Services Authority (DFSA) or a fund manager which is further managed by the DFSA.
- Other such entities present in the DIFC like holding companies, single-family offices, and proprietary investment vehicles.
The new regime drastically lowered the requirement to establish and run companies in the DIFC. It also has a simple and quick application process that complements the short and to-the-point application form.
The earlier requirements of providing a business plan have also been reduced and made easier and shorter to comply with.
The incorporation cost of an Intermediate SPV has also been reduced where the application fee has been reduced from USD 8000 to USD 1000 and the annual license fee has been reduced to USD 3,000 as opposed to USD 12,000.
The DIFC regime also allows the Intermediate SPVs to utilize the existing office spaces as their office address which reduces the costs of operation as it removes the obligation of acquiring a new office.
Intermediate SPVs provide a business-friendly solution to the entities already established in the DIFC and is an effective solution to divert risks for unplanned results in a business.
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