In this article you discover the advantages and downsides of using a RAK Offshore company as a holding company.

We will discuss the use of the RAK Offshore company as holding company for UAE Free Zone companies, as a holding company in an offshore structure, and other asset protection and estate planning considerations.

You will learn that there are some very good reasons to use a RAK Offshore company as holding company for your corporate structure.

But… there are also some potential downsides you need to take into consideration.
 

Why Use A Holding Company?

Just to recap, there are a number of reasons why one could decide to have a holding company. There can be other reasons, but these are the most important:

• Asset protection. You can use a holding company to distribute profits of a company that is actively trading. The reason that these companies, that are called “trading companies” are potentially at risk of lawsuits or asset freezing due to the fact that they engage in contracts and perform other active economic activity. Assets kept in a holding company are usually out of reach for creditors.
• Asset protection II. You can use one holding company to combine all your assets under one “umbrella”. This is what is called a “top holding” company. Or to easily transfer shares when the owner passes away.
• Tax planning. You can use a holding company to consolidate and reinvest profits of subsidiaries in a tax efficient manner.
• Tax planning II. By having a holding company in a tax friendly jurisdiction you can have large tax benefits when this is structured correctly.

Click on one of the following links if you want to read more about Asset Protection or Tax Planning (opens in new tab).
 

General Benefits Of Using A RAK Offshore Company As Holding Company.

So how does a RAK Offshore live up to these benefits?

Firstly, let us look at some very general characteristics of a RAK offshore holding company:

• The are no income taxes in the UAE. So from the UAE’s perspective you do not have to consider taxes.
• There is no audit, so you save time and money during annual renewal.
• Shareholders and directors are not on public record, so details are pretty confidential to protect you from malicious creditors.
• The UAE has an extensive network of tax treaties from which you potentially could benefit.
• The UAE has a world class banking system.
• The UAE has a good reputation in the international financial community, it is not considered an offshore haven and is influential enough to not have its policies completely dictated by the “international community”. There are a lot of very good reasons to do business inside the UAE.

 

Using a RAK Offshore Company To Hold Shares Of A UAE Free Zone Company

Ok, we have looked at the general characteristics of the RAK Offshore company. Let’s look at more specific uses.

For the purpose of holding shares in a UAE Free Zone Company, the RAK Offshore company is perfect.

The RAK offshore holding company ensures that an investor has all the benefits that where mentioned about with regards to asset protection, tax planning, confidentiality and estate planning.

And since the holding company is within the UAE, there are no legalisation issues. Free Zones in the UAE certify the stamp and signature of the registered agent. So when a resolution is passed before the registered agent, this can certified and used as if it were a power of attorney passed before a court.

Why this is important?

A number of free zones require a power of attorney holder or authorized signatories to appear in front of them during the incorporation process. This way, you can with one resolution authorise the right people to act on behalf of a business man, who otherwise would have to fly over or spend sometimes over 1000 Euro to have power of attorney legalised.

This is beneficial, not only during the set-up of the company, also for the opening of the bank accounts and future amendments.

Lastly, all assets (like real estate and legal entities) inside the UAE are subjected to Sharia Law. This is for (especially Western) foreigners not always attractive because the outcome of an inheritance case goes almost certainly against the wishes. Using an Offshore company is the only way around this issue.

 

Using The RAK Offshore In A Multinational Corporate Structure

We have concluded that RAK Offshore is ideal as holding company for a UAE free zone company.

And there can be very interesting uses of the UAE in international tax planning (for example, as a holding company of Cyprus companies).

But using a RAK Offshore company in an international corporate structure requires more careful planning and some considerations.

Firstly, when you use a RAK Offshore company to hold the shares of a foreign company, our experience tells us that often either the foreign notary or the bank demands to see legalised originals of the corporate documents and often a legalized resolution. The result is the four corporate documents have to be legalised at a cost of around 600-900 Euro each.

In addition, there are a number of countries that do not have embassies inside the UAE (or vice versa). This means that the legalisation process is going to be a very difficult.

Plus, every time something in the structure is amended, a resolution is passed or a certificate of good standing is required, alternative legalisation might need to be required.

In addition, as mentioned there are certain considerations with regards to inheritance. The process as described might be interesting to ease up the use of assets from a UAE perspective. But for a wealthy individual this might be exactly the opposite of what one wants in terms of estate planning.
 
Secondly, when using a UAE offshore holding company (or any UAE company for that matter) as a subsidiary for a foreign corporate structure there are three major considerations.

1. Banks in the UAE are required by the central bank to obtain legalised corporate documents of all shareholders. Again, this can increase the costs.
2. In addition, free zone authorities and the people working at banks in the UAE have difficulties understanding extensive corporate structures. And we do not mean extensive Christmas trees but anything with more than two shareholders or even worse, different layers of shareholder.
   The big international banks like Barclays did understand these structures. The problem is that they have left Dubai. The private banking department of Emirates also understood these structures but they have stopped accepting RAK Offshore.
3. Also, since recently RAK FTZ requests certificates of good standing of corporate shareholders every year at renewal.

One does have to remember that when you do have the structure in place, and when you have solved any potential inheritance issues, you could end up with a very solid, confidential and tax free structure!

Can a RAK Offshore Hold UAE Real Estate?

Another question that is often asked is, can an offshore entity hold real UAE estate?

The answer is: yes and no. You see, the UAE is a collection of different Emirates. And all have slightly different rules. For example, it used to be possible to buy real estate in Dubai with a RAK Offshore company. However, this has stopped. You can still use RAK in other Emirates. And off course in Ras Al Khaimah, where they have a lot of interesting developments nowadays.

2020 update: check this article for the latest possibilities for holding Dubai real estate.

Conclusion

RAK Offshore companies make perfect holding companies. When used to hold the shares of UAE Free Zone companies, they can greatly reduce risk, legalization costs, smoothing the set up process of the free zone company and streamline the inheritance process.

When using the RAK offshore company in an international structure the set-up requires some more careful planning and in most cases additional legalization costs. However, once a structure is set up you are likely to have a very solid, confidential and tax free structure.

To answer our original question: can the RAK Offshore entity be used as a holding company?

Yes, sir!

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