A decision made too quickly
Most Gulf transactions need a holding vehicle. The question of where it sits is frequently settled by whichever jurisdiction the adviser knows best, and then everything else is built on top.
The decision determines more than it appears to.
What a free zone vehicle gives
A company incorporated in DIFC or ADGM sits under a common-law regime with its own courts, English-language documentation, and a corporate law familiar to international counterparties. Security can be taken and registered under that regime. For joint ventures between international parties, this is usually the path of least friction.
The constraint is what the vehicle may hold and do outside the zone. Direct ownership of onshore assets, or conduct of activities licensed onshore, may require an onshore presence — so the free zone vehicle sits above an onshore subsidiary rather than replacing it.
What an onshore vehicle gives
Direct capacity to hold assets and conduct licensed activity in the domestic market, with judgments enforceable against local assets without an intermediate step. Where the asset is onshore and enforcement will happen there, that directness is worth a great deal.
The trade-offs are a corporate law framework built primarily for operating companies rather than investment vehicles, documentation frequently in Arabic, and ownership rules that may constrain the structure.
The usual answer
Many transactions use both: a free zone holding company, providing the governance and shareholder arrangements the investors want under a familiar law, above an onshore operating entity holding the licences and assets. This is well-trodden and works — provided two things are checked.
Security must work at both levels. A share pledge over the free zone company does not by itself deliver control of the onshore assets. The security package needs to reach the level where value sits.
Enforcement is a two-step. Obtaining a free zone judgment and enforcing it onshore is available and adds time. Where speed matters, that should be planned for rather than discovered.
Before fixing the structure
- Establish what must be held onshore as a matter of law, not preference
- Decide where enforcement will need to happen and align the forum with it
- Build a security package that reaches the assets, not only the holding company
- Check the tax and treaty position of each layer rather than assuming neutrality
- Confirm the licensing requirement for the activity, which may differ from asset ownership
