Update: a holding structure for a family-owned UAE

Family-owned groups headquartered in the UAE are under renewed pressure to demonstrate genuine substance in their holding entities. Regulators across the Gulf Cooperation Council and in offshore centres are scrutinising the gap between a holding chart and the economic reality behind it. For groups that have historically used a BVI or Cayman vehicle above a UAE operating entity – without a clear treaty access rationale or a documented beneficial-ownership trail – the exposure is real and the window to correct it is narrowing.

A holding structure for a family-owned UAE group works best when it is built around substance, treaty access, and a clean beneficial-ownership record – not around the chart on paper. The governing instruments include the respective corporate statutes of the holding jurisdiction, applicable double-taxation agreements, and the Economic Substance Regulations (the UAE rules requiring holding entities to satisfy a nexus test in the UAE) and their counterpart regimes in offshore centres. Groups that put the structure in place before a compliance review is triggered are in a materially stronger position than those who act after.

This briefing sets out the development, who it affects across the Hong Kong – UAE corridor, and the immediate action it calls for.

What has changed and what the deadline is

The pressure is not new, but its intensity is. Both the UAE and the principal offshore holding jurisdictions have strengthened their economic-substance and beneficial-ownership regimes over recent years, and those regimes are now in active enforcement mode. The BVI Business Companies Act and the Cayman Islands Companies Act each incorporate economic-substance requirements (rules that oblige relevant entities to demonstrate core income-generating activities in the jurisdiction, at an appropriate level of expenditure and with qualified personnel). Failing those tests can trigger automatic exchange of information with the tax authority of the relevant owner's home jurisdiction.

Simultaneously, the UAE's own Ultimate Beneficial Owner (UBO) registration requirements – part of the UAE's anti-money laundering and corporate-transparency regime – impose mandatory disclosure obligations on onshore UAE entities. A family group that holds its UAE operating companies through an offshore structure must satisfy both the UAE disclosure rules and the offshore substance requirements. The two regimes interact, and an answer that satisfies one may still leave gaps in the other.

For groups with a Hong Kong dimension – a treasury function, a regional headquarters, or a family office considering Hong Kong as a base – the foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023, adds a third layer. Passive income (dividends, interest, royalties, disposal gains) received in Hong Kong by a holding entity is subject to profits tax unless genuine economic substance is maintained in Hong Kong. A structure designed around a UAE–offshore–Hong Kong corridor must satisfy all three.

The sequence matters. Our desk sees groups that have corrected the offshore substance position without addressing the Hong Kong FSIE requirements, or vice versa. The gap emerges at the treaty-access stage, when a dividend is remitted and the withholding-tax treatment depends on where the holding entity genuinely sits.

Who is affected across the corridor

This briefing is directly relevant to three types of principal. First, UAE family businesses with an existing holding entity incorporated offshore – particularly in the BVI or Cayman Islands – that have not had a substance and beneficial-ownership review since the respective regimes were strengthened. Second, UAE groups that are now planning a new holding structure and are considering whether Hong Kong belongs in it – either as a regional hub or as the holding jurisdiction itself. Third, family offices whose principals are based in the UAE and are considering a relocation of capital or residence to Hong Kong, where the structure that worked in a Gulf context may not work in the same way.

The cross-border interface between Hong Kong and the UAE is a corridor our practice sees with increasing regularity. Hong Kong's common-law system, the absence of capital gains tax and withholding tax on dividends, and the territory's extensive network of double-taxation agreements make it a natural holding point. But those advantages are conditional: they rest on substance, on a correctly documented beneficial-ownership trail, and on a holding entity that can demonstrate it is the genuine beneficial owner for treaty purposes.

For a family group already operating in both markets, the question is not whether to have a structure. It is whether the structure currently in place will hold up to scrutiny under all three regimes simultaneously.

The immediate action

Groups that have not reviewed their holding structure in the past 18 to 24 months should treat this briefing as a prompt to do so. The review should cover three things: first, whether the offshore holding entity satisfies the economic-substance requirements of its incorporation jurisdiction; second, whether the UAE UBO registration is complete, accurate, and consistent with the beneficial-ownership records of the offshore entity; and third, where Hong Kong is part of the structure, whether the FSIE conditions and the substance requirements for profits tax purposes are being met.

A related question is treaty access. A holding entity that cannot demonstrate beneficial ownership of the income it receives will not qualify for the reduced withholding-tax rates under the applicable double-taxation agreement. For a family group moving substantial dividends or disposal gains across the corridor, that risk carries a material financial consequence – one that a structural correction before the next distribution can avoid.

We regularly advise on holding structures across the Hong Kong and offshore centres, including the substance and treaty-access analysis that the UAE corridor requires. For groups with UK investments above a Hong Kong holding entity, the additional considerations are set out at our dedicated page on Hong Kong holding companies for UK investments. The comparable questions for a Cyprus vehicle above a Hong Kong operating entity are addressed in our earlier briefing on Cyprus holding structures over Hong Kong entities.

For a structured assessment of your current holding position across the UAE corridor and the relevant offshore or Hong Kong jurisdiction, write to us at info@lockhartyip.com.

Frequently asked questions

Do I need a Hong Kong adviser for a holding structure for a family-owned group in the UAE?

International counsel with a Hong Kong seat is valuable where the structure involves a Hong Kong holding entity, a Hong Kong family office, or a treaty-access analysis that depends on Hong Kong's network of double-taxation agreements. The FSIE regime and the beneficial-ownership requirements for treaty purposes are not self-executing – they require documented substance and a clear record that the Hong Kong entity is the genuine beneficial owner of the income. Where those conditions are not met, the Hong Kong leg of the structure does not deliver the intended outcome, and a review before the next distribution is the prudent step.

How long does a holding structure for a family-owned group in the UAE usually take?

The timeline depends on the jurisdictions involved, the complexity of the ownership chain, and whether an existing structure needs to be corrected or a new one built from the beginning. A review of an existing offshore and UAE structure – covering substance, beneficial ownership and treaty access – can ordinarily be completed within a matter of weeks if the underlying documents are available. Implementation steps, including any necessary reorganisation or re-registration, take longer and depend on the offshore registries involved and the pace of regulatory processing. Parties should verify the current processing times in the relevant jurisdiction before acting.

Which jurisdiction's law applies to a holding structure for a family-owned group in the UAE?

Each entity in the structure is governed by the law of its incorporation jurisdiction – the BVI Business Companies Act for a BVI vehicle, the Cayman Islands Companies Act for a Cayman entity, and the Companies Ordinance (Cap. 622) for a Hong Kong company. The tax treatment of income flows is governed by the applicable double-taxation agreement and the domestic tax rules of each jurisdiction. A structure involving the UAE, an offshore holding centre, and Hong Kong therefore engages at least three bodies of law simultaneously. International counsel coordinates across those systems; locally licensed firms in each jurisdiction handle the matters of domestic law.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.

Update: a holding structure for a family-owned group in the UAE

What has changed and what the deadline is

Who is affected across the corridor

The immediate action

Frequently asked questions

Speak with Lockhart & Yip

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