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.
Each month, the operating company will pay lease expenses to the holding company, providing cash flow to the holding company. The holding company may also own the land and charge the operating company rent to use it, or lend the operating company money and collect interest payments.
You should try to have most of the intercompany cash stored with the parent company. Where it can earn interest, and lend it to the operating company when needed. As long as the cash is in the accounts of the holding company, it is not subject to the liabilities of the operating company.
Many holding companies invest in multiple businesses and owning shares in multiple businesses. Also, securing low interest using the financial security of diverse investments. The holding company earns income from the growth of investment in smaller companies. As well as any interest or lease income it earns.
Remember to always keep separate bank accounts and records for each of the businesses. So you can track and report their activity.
You will file two separate tax returns, one for the farm and one for the operating company. File your taxes annually, and consult an accountant if necessary. You may also need to pay state franchise fees for your businesses. As well as file the necessary reports with state business registries. Consult a business attorney if you are unsure what taxes and fees apply to your business.
9. Conduct research
This is the most important step you need to take if you want to get started on the right path. This is so because you will need to gather a lot of information that will help you run your business as it is. You may consider turning to the internet to gain some knowledge as it is one of the largest information communities.
Research on holding companies, how they operate, the major players in the field, and the various industries. Also, a host of other indispensable information that will do you good when starting out.
10. Choose the industry you want to invest in
The next step is just as important because it will largely define what you want to be a major investor in. Determine if it is the oil and gas industry, banking, and a host of other industries that are available in your country of residence. It is important that you also take a critical look before committing something.
11. Write your business plan
Getting started in this industry without a proper plan could amount to a loss. That is why it is very necessary that you have a good business plan. What are commercial strategies and why are they so vital? Business plans are the blueprint of your business that helps you chart the right course in business. It is important because you can always turn to it for instructions. You can consider hiring a professional to help you modify this.
12. Pool your cash and team up with other investors
Start-up funds are very important when looking to start any business. This is why you need to take a critical look at the various ways you want to use to raise money. Some of the ways include; savings, donations from family and friends, angel investor interventions, and if you want to have a partner, then you may want to consider getting one or more onboard who can help you financially.
13. Register your holding company and obtain a business license
You could not operate this type of business without being registered. This is where your business registration comes in. This means that you will have to go to the office of the chamber of commerce in your country. Or, the office of corporate affairs, as the case may be. Be sure to deliver all the info demanded. We invite you to check out our business licensing services.
14. Get an address
This is a kind of business that you can run from the security of your house. So you will need to get an office space. Consider telling your real estate agent to look for an office that is in a business district. Also, do not forget that you will need more than offices because of the visitors you will have to take care of. In addition, feel free to take a look at our offices for rent.
This is one of the most significant phases you will need to take. You will need to look for companies that want to be sold. Consider sending consultants to help you obtain such information, but of course for a fee. You can consider sending cover letters to companies. Also keep your eyes peeled for information about who and who wants to sell in the newspapers, the Internet, and what you have.
These are some of the basic steps that are needed to start a holding company. Remember that sourcing companies that are willing to sell their companies are not something unique. In fact, it is an ongoing thing if you want to stay in the game.
16. How can we help you obtain more information about starting holding companies in Dubai?
When you do not have the right knowledge and resources, licensing processes might be difficult. This is in addition to other procedures such as choosing the best course of action for your startup. This is when our services, at Connect Services Middle East become key.
Business consulting services will make everything easier for you. As a result, we can provide you with our expertise in a wide range of legal issues and the best packages.
Are you seeking assistance from experts with your service license? Please contact us. You can reach us at +971 43 316 688 for assistance. Furthermore, if you send an email to contact@c-uae.com, you will receive tailored assistance from our team.
