Due to business-friendly policies, AML/CFT countermeasures, and a stable banking environment, UAE is considered an internationally-recognized jurisdiction.

The process of re-domiciliation might be complex, depending on many factors, which are defined by its current jurisdiction, shareholding structure, and the number of employees that are officially employed. It is also important to assess the operational impact, tax, and legal regulations of new jurisdiction. In this article, we would like to outline a few important points such as legal and tax implications as well as overview the barriers between banks and registries when transferring a company from one jurisdiction to another.

Reasons for Re-domiciliation

Reasons for re-domiciliation can be various: aiming to operate under more flexible taxation laws, regulatory changes in original jurisdiction, etc. Regulations/tax changes, especially related to Base Erosion and Profit Shifting (BEPS), Economic Substance Regulations (ESR), and more recently the Global Minimum Tax of 15%, are the key drivers behind business restructurings involving re-domiciliation. In the context of BEPS policies, some companies transfer from tax-free jurisdictions into low-tax environments, in order to comply with these policies.  

Speaking about BEPS, its purpose is to tax profits where the underlying economic activities occur. The result of this has been a shift of offshore operations to onshore or "mid-stream" jurisdictions such as the UAE for years. With the recent implementation of Economic Substance Regulations (ESR) in no-tax and nominal-tax jurisdictions, operating business models have changed and restructured further. As part of the ESR, companies that engage in qualifying activities (so-called 'Relevant Activities') must demonstrate substance, including key revenue-generating activities and headcount.

The main reasons for e-domiciliation to the UAE may be:

• Flexible regulations
• Stable economy
• Full repatriation of the capital
• Attractive taxation benefits and facilities 
• Simplified assets protection system (by means of DIFC Wills as an example)
• Access to a range of local and international banks
• Sustainable geographic location and access to different financial centers and regional markets
• Free Zones that consider Re-domiciliation

Examples of Free Zones which allow Re-domiciliation include the following: 

• Abu Dhabi Global Market (ADGM)
• Dubai Airport Free Zone (DAFZA)
• Dubai Multi Commodities Centre (DMCC)
• Ras Al Khaimah International Corporate Center (RAKICC)
• Dubai Development Authority Free Zone (DDA)
• Jebel Ali Free Zone (JAFZA)
• Ras Al Khaimah Free Trade Zone (RAKEZ)
• Dubai International Financial Centre (DIFC)
• Dubai Silicon Oasis (DSOA)
•  

DIFC and ADGM are both "financial" free zones that offer primarily "financial" activities, while DMCC and JAFZA have a wide range of "generalist" activities and activities annexed to those regulated activities. 

Earlier, the UAE was not explicitly considering a legislative framework that allows a company to re-domicile (also known as “continuation”) mainland companies: according to UAE Federal Law, No. 2 of 2015 concerning Commercial Companies, companies established outside the UAE were not permitted to re-domicile into the UAE. However, currently, companies can transfer their registration to the mainland as well to the Free Zones, including under the Dubai Law No (14) of 2015.  

The concept of a Re-domiciliation from Offshore to Onshore

One of the trending benefits of re-domiciliation is that it allows transferring the company from offshore jurisdiction to onshore jurisdiction. It means that the company obtains its “resident status” in the output which provides many other benefits and secures banking relations.

There are two main stages for a company re-domiciliation process: 

• Preparing documents to transfer a business outside of its current jurisdiction 
• The actual transfer process of registration of a new address in a new jurisdiction

The two stages are processed simultaneously, where the final output will provide the Certificate of Discontinuation in the original jurisdiction, and processing the Certificate of Continuation in a new jurisdiction. The longevity of the process might take from one month and above, depending on the complexity of the process. 

Barriers for re-domiciliation

Although the process of re-domiciliation is quite straightforward, there still might be certain barriers. In the current trends of global deoffshorization, the banks, by imposing certain regulations, result in developing certain barriers for re-domiciliation. In this context re-domiciliation from one offshore jurisdiction to another might seem unreasonable.

Jurisdiction barriers, on the other hand, imply possible obstacles in transferring from one jurisdiction to another. For instance, the jurisdiction does not hold the legal framework for re-domiciliation, or the jurisdiction does not provide certain activities within its list, which requires other solutions, such as a substitution for adjacent activities. Some jurisdictions initially hold certain classes of shares, whereas a new jurisdiction might not provide the same. Moreover, there are certain jurisdictions that issue Bearer shares - a type of share that does not need to be registered under the name of a specific person or company, which are not supported in the UAE. While transferring to a new jurisdiction, bearer shares in many countries might be prohibited. 

Benefits for re-domiciliation

In the context of mitigating commercial and banking risks, one of the main benefits is that companies maintain their legal identities as well as existing banking relations. This significantly saves time and costs in comparison scenarios with registering new entities and liquidating existing ones. As mentioned previously, commercial contracts are not required to be novated, but it is essential to make sure that the company still examines whether it can continue to carry out its obligations under the regulations of the new jurisdiction.

As an example, considering a BVI company that needs to meet the requirements of Economic Substance and due to some reasons can’t do this, the re-domiciliation would be one of the optimal solutions for restructuring a business, provided that the new jurisdiction does not classify its business activity as “relevant” or regulates its “relevant” activity in a way that company can easily meet the requirements. 

Tax and legal implications 

An Emigrating State's laws and regulations should provide a mechanism that permits companies to change their domiciles. Companies emigrating to the UAE, where their original country/state allows re-domiciliation, are typically required to demonstrate their Solvency and Assurance that shareholders and creditors will not be adversely affected by the issuance of a certificate of continuation by the respective registrar.

In the Emigrating State, tax implications are determined by the tax regime in place. There will generally be no adverse tax consequences to emigration from states without material taxes (Ex: BVI). While such countries may not levy taxes, they may have tax reporting requirements. As a result, some tax compliance requirements may apply to the emigrating company (Ex: Jersey). 

The UAE is an internationally white-listed jurisdiction that provides businesses with a highly professional, growth-oriented environment backed by world-class infrastructure, business-friendly policies, stable banking facilities, and anti-money laundering and counter-terrorist financing countermeasures. 

If you would like advice or assistance concerning the re-domiciliation of the company, kindly contact us. 

Marsel Shadmanov

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335

Email info@garant.ae