There has been considerable talk about offshore companies and what they can – and cannot do – in Dubai. Given the amount of queries received, it is worthwhile to examine the formation purpose and the functions of a Jebel Ali (Jafza) based offshore company and what investors can and cannot do.
Unlike an operating company that is formed with a business license, an offshore company gets a certificate of incorporation, along with the memorandum and articles of association as its constitutional documents. This means that the company cannot carry out business activities in the UAE, and as such its primary function (as is the case with most offshore companies) is to be a holding vehicle of assets for its parent shareholders.
Given the fact that rules are different across countries, there is no objection if the company wishes to conduct business in a foreign jurisdiction, as that is outside the purview of UAE law.
The shareholders of the company may be natural and/or legal persons (other entities), and often multinational companies incorporate such entities that are in turn owned by international legal entities.
Considering that this process is also sometimes vulnerable to abuse, it is imperative to point out that at the time of incorporation, there are comprehensive checks that are undertaken by the authorities to exclude prospects of criminal activity, including – but not limited to – money laundering activities.
It is also relevant to point out here that any names of companies that allude to underlying an business activity such as banking, insurance, health care, etc will also be rejected by the authorities. Certain operational formation guidelines – such as the appointment of two directors and that of a secretary – are part of the formation formalities of incorporation of such offshore entities. Many, if not most, of these procedures can be outsourced to and handled by the agent.
For the purpose of holding freehold assets, Jafza offshore companies require an NOC from the Dubai Land Department, which is relatively easily obtainable. This then allows the company to acquire, dispose off and rent assets in these jurisdictions.
Additionally, the offshore entity can acquire shares, and other assets in onshore companies, subject to the necessary approvals being received from the relevant jurisdiction. In all cases, administrative functions of the Jafza offshore are handled by an appointed agent.
The said agent then liaises with the Authority itself for any changes and amendments that are required to company documents, as well as with external stakeholders (such as banks, cross jurisdictional bodies, etc) for normal business practices.
Given the complexity of some of the transactions that have been undertaken by the parent shareholders, especially when it involves international jurisdictions, often the agents are legal firms. As offshore companies are not permitted to have registered addresses, the registered address of the said company is that of the registered agent.
In recent times there has been some stigma that has been attached to the practice and conduct of offshore companies. While some of the criticism is justified, there remain merits to the practice of offshore company formation.
These include a myriad of advantages ranging from simplicity to efficiency in terms of holding cross jusridictional assets. In today’s fast moving world of commerce, offshore jurisdictions (such as Jafza) offer a minimal amount of bureaucracy allowing for a more efficient allocation of capital.
Current owners of such offshore entities as well as those who are potentially considering the formation of such entities would be well advised to contact their legal representatives to properly evaluate the needs and thereby optimally form such holding entities. Prudence demands no less.