Steps to start a holding companies in Dubai (2023 Updated)
Holding companies in Dubai are formed to organize and manage a group of smaller companies. If you are a business owner or investor, you may consider forming a holding company to protect your business assets or obtain a more favorable tax rate. In this article, we will explain in detail the steps to start a holding company. Keep reading to find out how to start a holding company in Dubai. 1. Evaluate your business needs Holding companies in Dubai are incorporated companies that hold investments in other companies, called operating companies. The parent company does not engage in any business activities other than borrowing, lending, and making investment decisions. However, the holding company in Dubai lends funds or leases assets to an operating company that conducts business activity. The two most usual advantages of a holding business are tax decrease and asset safety. A holding company may provide a reduced tax rate by incorporating a state with a more favorable tax structure, or it may protect the company’s assets from losses to creditors of the operating company. Before starting a holding business, you should consider your commercial needs and the advantages you want to achieve. Holding companies in Dubai may also be suitable for a small business owner, as the holding company can provide asset protection for the high-value assets of the operating company. In this way, by forming a holding and operating company, a single person can protect their high-value personal and business assets from creditors of the company’s operations. 2. Determine your business structure There are two predominant forms of a holding company in the UAE, the corporation and the Limited Liability Company or LLC. You should determine which form suits your needs, as the form you choose may affect your taxes and obligations. Most small business owners choose to form an LLC holding company, as the corporation structure generally does not provide the same asset protection. Consider what type of business you already have, if any, and what type of holding and operating company will suit your needs. If you are looking for a more favorable tax structure, you may want to consider forming your holding company in the UAE in a separate state from that of the operating company. You should consult a business expert to help you set up a business in another state. To maximize asset protection, you can form two LLCs, a holding company, and an operating company. You must create a separate entity for each, but the agent for each can be the same person: you. As long as you maintain the holding and operating companies as separate legal entities, the holding company will not be liable for the debts of the operating company. 3. Submit a business application You will form your holding company in a Dubai free zone according to state laws and the type of business you want to form. Whether you form an LLC or a corporation, you will need to file with the state giving the business name, business agent name, and articles of incorporation for your business. You must do this for your operating company, as well as for your parent company if your operating company is not yet incorporated. Your articles of incorporation should state your company’s purpose and objective, the names of company officers, and how business decisions will be made. Update articles of incorporation as you make business changes. 4. Create a specific bank account for your holding companies in Dubai To preserve individuality as separate businesses, the holding company and the working company must keep separate bank accounts and secretarial records. You should open a specific business account for your holding company by providing your new company tax ID when you create the account. 5. Finance the holding company To start using the holding company, you need to finance the company to start investing in the operating company. The wealth from your companies should be stored in the holding company, and you can lend money to the operating company to fund operations as needed. If your operating company was already started before the parent company, start by selling all valuable assets of the operating company (such as land, buildings, large equipment, intellectual property, etc.) to the parent company by filing an asset transfer. 6. Keep accounting records of your transactions As you operate your operating and portfolio companies, keep accurate accounting records of the transactions that take place between your businesses. Separate accounting records are essential to maintain the legal distinction between entities. The holding company must claim income for the amounts it obtains from the holding company as a lease or rental income, as long as that amount exceeds the expense of owning the asset. You need to keep records so that at the end of the year you can account for all the transfers that took place between your holding company and the operating companies. 7. Perform all operational activities through the operating company Business activities are classified as operating, investing, or financing activities, and you must conduct all operating activities through your operating company, not through your parent company. Operating activities are the sale of goods and services that generate income in a business, such as the sale of groceries or clothing, or the sale of services such as dental work or carpet cleaning. To ensure that your holding company is never liable to creditors of the operating company, the holding company should never engage in these operating activities. The phrase “piercing the corporate veil” is commonly used to describe when a holding company is liable for the debts of an operating entity. This happens when the operations of the two companies are so intertwined that the holding company is responsible for paying the debts of the operating company. 8. Invest and finance using the holding company The holding company may act as a lender or lessor to the operating company, whereby the holding company owns the company’s assets and the operating company rents them to the holding company.
