UAE offshore companies: can they really compete?

uae_offshore_companies_can_they_really_compete

The many advantages of a UAE offshore company

The world of offshore companies and set up has been turned upside down in the past few years. A few major shifts and events happened that will have long term impact on the whole offshore industry. These include:

  • The 2008 financial crisis was a catalyst for indebted governments to crack down on tax havens;
  • The Panama papers was a major PR blow to the industry, and tainted the concept of offshore itself, no matter if the offshore is used in a legal way or not; and
  • The major push from the USA and the OECD on transparency with initiatives such as FATCA and the Common Reporting Standard.

These events are more than simple obstacles on the road of offshore jurisdictions. It has already changed fundamentally the landscape. A good sign of these changing times is that last year, for the first time more offshore entities were closed than opened. This trend is accelerating. The small providers of offshore entities are disappearing and the large providers are getting stricter on which type of clients they can onboard.

The use of offshore entities for confidentiality purposes is now over. With the Automatic Exchange of Information already being enforced in all the major offshore centers, and soon in about 100 countries, there is no point setting up an offshore vehicle if what you are trying to achieve is confidentiality. In addition, with the really bad press that the term “offshore” carries, many high profile corporate groups have ceased to use traditional offshore jurisdictions and are now moving to less conspicuous jurisdictions that will play the same role but won’t be plagued with the same bad reputation and press.

As a result the offshore industry is in turmoil. Demand for such vehicles is decreasing, fees are under pressure, and the cost of compliance from registered agents is increasing. This is unsustainable and many offshore centers will disappear in the near future. Only a few jurisdictions that have managed to position themselves will remain. A few jurisdictions that have managed to stay ahead for the game include the Cayman Islands, Hong Kong, Singapore, Delaware, BVI and Mauritius. There are numerous other jurisdictions offering offshore options but they do not come close in commanding significant market share.

Given this environment, it is fair to ask if it is worthwhile for the UAE to develop its offshore entity offering. In addressing this question it is first useful to understand how the other top offshore jurisdictions are currently being used.

Jurisdiction

What is primarily used for

Advantages

Disadvantages

Cayman

Hedge funds for the US

Excellent regulatory framework; critical mass in the fund business

Difficult and expensive to open bank account

BVI

Holding vehicles, SPV

Critical mass, known brand, flexible jurisdiction

Difficult and expensive to open bank account, lots of questions about substance of BVI

Delaware

US-based assets holding vehicle, SPV under a Delaware Trust

Quality business friendly environment, not a Caribbean island

Not recognized for other worldwide assets

Hong Kong

Trading entity

Location in Asia

Difficult and expensive to open bank account; makes sense mostly for Asian business

Mauritius

Holding vehicle, SPV

Can be converted easily into an onshore entity that gives tax treaty benefits

Difficult and expensive to open bank account

Jersey / Guernsey

UK property structure

Very close to the UK, legacy in estate planning

With new IHT rules offshore structure to hold properties no longer work


The above list is actually much longer, but this gives some indication as to main vehicles in demand and the needs of our global clients.

The United Arab Emirates Offshore Entity

In this context, why would the UAE develop its offshore offering? There are 3 jurisdictions offering an offshore set up in the UAE:

  • Dubai: Jebel Ali (Jafza) offshore
  • Ajman: Ajman offshore
  • Ras Al Khaimah: RAKICC

The JAFZA value proposition was mainly its ability to structure Dubai properties for succession planning. Now with the DIFC will in place, it remains to be seen if the JAFZA offshore will still be relevant in the near future. It is also very expensive. Ajman offshore is starting to pick up some momentum. It is quick and cheap to set up.

Meanwhile the RAK offshore is one of the most used offshore set ups in the UAE. It is relatively inexpensive and also easy to set up.

Currently, all offshore in the UAE pale in comparison to the BVI and Cayman when it comes to brand recognition. We often see that clients want an internationally recognized vehicle. When we discuss the UAE offshore options with them, they ask us to move on to other offshore solutions. They want the BVI or Cayman. However, once we are able to explain some of the main differences, and how the UAE offshore can be better for their business locally, the UAE offshore start to sound exceptionally good to the client of audience we are speaking with.

A major advantage is the banking account opening. If you have tried to open a bank account for a BVI anywhere in the world, you will be able to understand the considerable frustration you will encounter. Most of the banks will tell you that they simply cannot assist you. If, by chance, you find a banker who is willing, you soon get the sense you are dealing in some illegal activity, and in addition the costs involved with everything needed to be certified with an apostil for every document from the BVI, as well as needing to lock down a large sum of money with the bank to make it worth their while. It is an expense that can soon go up to the tens of thousands of USD.

However, if you take the option of an RAKICC offshore, you can open up the bank account with almost all the local banks in about 2 weeks’ time. Furthermore, because it is considered a UAE entity you will not need to spend time or money doing paperwork to get the incorporation documents certified, apostilled, attested across 3 countries.

Another advantage in the case of the RAKICC, is that they now have business activities that are defined in the Memorandum and articles of association. This means that it will be a lot easier to use those entities to handle transactions. The BVI does not have any such categories and it makes it increasingly difficult to justify international transactions.

If you are contemplating the idea of doing some real business in the UAE then the RAKICC gives another major advantage over the BVI. Basically, you can upgrade the offshore to a free zone and get a proper trade license, visas, etc. You simply cannot do this with a BVI. So for startups this is ideal.  You can do all your development phase at a very low cost using only an offshore entity and then when you are ready for the next step you convert into a free zone, which also gives you the trade license and visas.

In summary, what we see from our industry is that whilst the UAE entity cannot compete in terms of brand recognition with the other more established offshore centers, when you look at the practicalities, the UAE offshore offering and in particular the RAKICC has a very interesting niche market that it can address.

How can Amicorp in Dubai assist you?

Our office specializes in delivering innovative international structuring solutions in investment, holding, finance, license, and trading. Additionally, Amicorp's office in Dubai can assist clients with establishing and managing free zone entities that benefit their trading activities. Amicorp's thorough knowledge of changing regulations, legislation, and double taxation avoidance agreements results in the best service for our clients.


For further information, please contact:

Alexandre Teodoresco

Business Development Manager
+971 4304 2900
a.teodoresco@amicorp.com