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The founder often plays an integral role in the business. They may have control over major clients, responsibility for approving financial commitments, managing relationships with banks and overseeing senior staff. As a result, the founder may hold considerable commercial knowledge, established relationships and decision-making authority.

This arrangement can work well, but as the founder approaches retirement, it can create risks if the business has not developed a strong management structure. A sudden departure may expose weaknesses, such as unclear decision-making powers, undocumented commercial agreements and reliance on a small number of key employees.

Succession planning is often viewed as a family matter, particularly where ownership rests with a parent and child or where the business has passed through several generations. However, it is important to consider its impact on the business as a whole. This involves examining corporate governance and considering what will happen to employees, creditors, investors, customers and commercial partners. Ultimately, the most important consideration is whether the business can continue to operate effectively.

Retirement provides an opportunity to separate ownership, management and oversight of the business. The founder can retain an economic interest without remaining the Chief Executive, while professional managers can be appointed to oversee day-to-day operations through a board or other management body. Making this distinction before the founder retires reduces the risk of disruption arising from a change in personal circumstances.

Choosing a Successor

A common mistake in succession planning is to assume that the eldest child, another relative or a long-serving employee will automatically become the successor. While family relationships, loyalty and length of service may influence the decision, they do not necessarily mean that the individual has the skills required to manage the business.

The successor must have the ability to manage the financial, staffing, regulatory and commercial aspects of the business. If the business operates in multiple jurisdictions, they may also need knowledge of different licensing rules, tax requirements, employment regulations and contractual risks. Inheriting shares in a business does not automatically give someone the skills or legal authority required to run it.

Before choosing a successor, the founder should identify the responsibilities that need to be handed over. These could include signing contracts, managing bank accounts, approving expenditure, appointing senior staff, representing the business before government authorities and making strategic investment decisions. Each responsibility should have a clearly identified successor, supported by the necessary approvals and documentation.

If no family member is ready to take on the role of Chief Executive, employing an experienced professional may be a more sustainable option. Family members can retain ownership and have an input into strategic decisions, while a suitably qualified management team oversees day-to-day operations. This allows the business to remain within the family without depending on a particular relative to manage it.

Separating Ownership and Management

A founder's retirement does not necessarily mean that the business must sell its shares. Ownership and management are separate, and the founder can continue to hold shares, receive dividends and exercise agreed shareholder rights. This can be achieved through an appropriate ownership and management structure.

The arrangements will depend on how the business is established. In the UAE, many mainland companies operate under Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, together with specific rules applicable to certain types of companies and free zones.

Before the founder steps down, it is important to review the Memorandum of Association, Articles of Association and shareholders' agreements. These may need to be updated to address the appointment and removal of directors, voting rights, reserved matters, share transfers, dividend policies and dispute resolution. Any powers previously exercised by the founder should be assigned to the appropriate corporate bodies.

This is particularly important if the founder wants to remain a shareholder without having any executive involvement. Without clear provisions, other shareholders may assume that they are entitled to influence how the business is managed. Alternatively, the successor may find that they do not have sufficient authority to carry out their responsibilities.

The objective is to structure the business so that the person responsible for running it has the necessary authority, while shareholders retain the rights to which they are legally entitled.

The UAE Family Business Framework

The UAE has introduced a specific framework to support family businesses. Under Federal Decree-Law No. 37 of 2022 on Family Businesses, qualifying companies can organise their family ownership, governance and succession arrangements.

The legislation recognises that family businesses can face challenges that differ from those encountered by other companies. Disagreements may arise over management, succession, share transfers and the involvement of relatives in the business. Such disputes can affect the company's operations if they are not addressed appropriately.

One of the key instruments available under the framework is the Family Charter. This can outline the family's principles concerning ownership, share valuations, profit distribution, the qualifications required of family members seeking employment in the business and procedures for resolving family disputes. It can also establish expectations regarding the education and preparation of younger family members who may eventually assume leadership roles.

However, the Family Charter should not replace the Articles of Association or override statutory requirements. Where conflicts arise, the applicable legislation and corporate constitutional documents must be respected. Families should ensure that their arrangements are supported by the appropriate legal documentation.

The framework also allows families to establish governance bodies, including family assemblies and family councils. These can help the founder address family concerns without involving those responsible for running the business.

If the business meets the relevant requirements, registration under the family business framework is worth considering. The regime is intended to support continuity of management, organised ownership and the prevention of fragmentation of family shareholdings.

Planning Inheritance

Retirement and inheritance planning are closely connected, but they are not the same. While a founder can transfer management responsibilities during their lifetime, the transfer of shares raises separate considerations. These include inheritance rights, share valuation and the need to protect family interests while maintaining stable ownership of the business.

In the UAE, particular attention is required where shareholders or beneficiaries are based in different countries. The applicable inheritance regime, the company's place of incorporation, the nature of its assets and the founder's personal circumstances can all affect how succession is handled. A will should not be assumed to override every restriction imposed by company law or other applicable legal requirements.

The DIFC Courts Wills Service is available to qualifying non-Muslims with assets in the UAE. It provides an option to register wills covering business shareholdings. Up to five UAE shareholdings can be included in a Business Owners Will. Executors can also be appointed to administer the specified interests. Before relying on this arrangement, business owners should check whether their shares are subject to any legal or contractual restrictions.

An important legislative development is Federal Decree-Law No. 20 of 2025, which amends provisions of the UAE Commercial Companies Law. The amendments include provisions dealing with the disposal of shares or stakes belonging to deceased partners or shareholders. Existing shareholders or the company may be given priority to purchase the interests. The price can be agreed with the heirs or determined through a specialist valuation by the competent court.

This is relevant to succession planning because the transfer of ownership does not necessarily mean that the shareholder base must expand indefinitely. The founder should consider how these provisions interact with the Articles of Association, any shareholders' agreement and the intended inheritance arrangements.

It is also important to establish whether the business has sufficient liquidity to purchase shares from heirs who would prefer to receive cash rather than retain an ownership interest. Without a realistic funding arrangement, disputes may arise over valuation and ownership.

Establishing an Independent Management Team

If the business remains completely dependent on the founder to make all significant decisions, the successor will struggle to take over effectively. The management structure must be reorganised to distribute authority and responsibility.

A board of directors or an appropriately constituted governing body can provide oversight, approve major transactions and monitor management performance. Independent directors or advisers can also contribute commercial expertise and objectivity, particularly where family relationships influence business decisions.

The founder should ensure that financial controls, reporting procedures and approval mechanisms are in place. Bank mandates, authorised signatories, powers of attorney, licensing records and contractual authorisations should all be reviewed. The appointment of a new manager does not automatically mean that the individual is legally authorised to represent the company when dealing with banks, regulators or third parties.

Important commercial knowledge may reside with the founder. This could include key customer relationships, supplier arrangements, pricing strategies, intellectual property and regulatory commitments. Documenting this information will reduce the risk of losing critical knowledge when the founder steps away.

A smooth transition should be planned. The incoming management team should be involved in major negotiations, financial reviews and strategic decisions before assuming full responsibility. The founder can also provide support in a non-executive or advisory capacity for a defined period. However, the arrangement should not create confusion over who has final decision-making authority.

Establishing the Right Ownership Structure

For larger family businesses, managing ownership can become increasingly difficult when multiple family members hold shares in operating companies. In some circumstances, establishing a holding company or another appropriate ownership structure can provide a more organised arrangement.

A holding structure can consolidate ownership of operating subsidiaries, investments and business assets. It can also establish a clearer distinction between the management of commercial operations and the family's long-term ownership interests. However, the choice of structure should reflect how the business operates, its tax position, regulatory requirements and the laws of the relevant jurisdictions.

The UAE's financial free zones, including the Dubai International Financial Centre and Abu Dhabi Global Market, provide legal frameworks that allow structures such as foundations and trusts to be established. Depending on the circumstances, these can form part of a wider succession and private wealth strategy.

However, such arrangements will only be effective if they are properly established. Asset transfers, constitutional documents, beneficial ownership requirements and the laws of the relevant jurisdictions must all be considered. A structure established in one jurisdiction may also require recognition or additional legal steps in another.

If the founder has businesses, properties or investments in multiple countries, succession planning should take a coordinated approach. Conflicting wills, incompatible ownership provisions and different approaches to inheritance can create disputes and complicate the transfer of control.

Informing Staff, Customers and Creditors

The founder's retirement can create uncertainty among other stakeholders. Employees may be unsure about their future roles, customers may be concerned about how the business will continue to operate, and lenders may reassess its management and financial position.

Communication will be important. The founder and incoming management should agree on how and when the change will be announced, particularly where the founder has been closely involved in major commercial relationships.

Employment contracts, incentive arrangements and staff retention may also need to be considered. Senior employees may be critical to maintaining business stability. Their continued involvement can preserve institutional knowledge and reassure customers during the transition.

Financing agreements and major commercial contracts should also be reviewed. Some may contain clauses relating to changes in ownership, management or control. Failure to consider these provisions could create unnecessary contractual difficulties.

The business should also review its insurance arrangements. Key-person insurance may be appropriate in certain circumstances. While it cannot replace the founder's management knowledge, it can provide financial support if the founder becomes incapacitated or dies before the succession arrangements are completed.

Gradual Retirement to Reduce Commercial Risk

For a founder who has spent years building a business, stepping away can be difficult. There may be concerns that the successor will not uphold the company's reputation and standards or that future decisions will not reflect its original values.

A gradual transition can help address these concerns. Initially, the founder can step back from day-to-day operations while retaining responsibility for selected strategic matters. As the transition progresses, the successor can assume greater authority, allowing the founder to move into an advisory or non-executive role before eventually leaving the business.

Responsibilities and timelines should be clearly defined. An informal assurance that the founder will remain available whenever needed can create confusion and undermine the successor's authority.

The business should also have a contingency plan. If the proposed successor leaves, becomes incapacitated or proves unsuitable, alternative arrangements should be available. Succession does not necessarily involve appointing just one person. A management team with complementary skills, supported by clear governance procedures, can provide greater resilience.

Measuring the Success of Succession

The successful transition of a business beyond its founder does not necessarily mean that ownership must remain within the family. In some cases, the most appropriate option may be to appoint a professional management team, sell part of the business, establish a strategic partnership or transfer the entire enterprise to another investor. The decision should reflect the company's commercial prospects, the interests of its owners and the availability of suitably qualified successors.

For founders approaching retirement, the most important step is to begin the process early, while they still have the time and authority to implement the necessary arrangements. Corporate documents, shareholders' agreements, inheritance instruments, management appointments and asset ownership structures should be reviewed together. Professional advice should be obtained from specialists familiar with the relevant jurisdictions.

Ultimately, the success of the transition should be measured by how effectively the business operates without the founder's involvement. If it cannot make decisions, retain customers or meet its obligations without the founder, the succession process has not been completed successfully.

The strongest legacy a founder can leave is a business with the leadership, legal structure and institutional strength to continue growing long after they have stepped away.

Having a registered address in a low tax jurisdiction may satisfy the incorporation requirements, but it does not necessarily mean that the company will be tax resident, profits will be taxed in that country and that it will qualify for any treaty benefits. This has become an increasing concern for multinational groups, holding companies and entrepreneurs who have an international presence.

While not a new issue, as governments continue to share financial information and understand who owns the company and what transactions are taking place, having a company incorporated in one country does not necessarily mean it will be seen as tax resident in that country. A company will be tax resident in the country where it is effectively managed. Even if a company can be proven to be tax resident, if there isn't any real business activity within the company, this can cause issues with claiming any lower rate of withholding tax or exemptions.

When structuring companies across the United Arab Emirates, Europe, Asia and Offshore Financial Centres, it is no longer enough to simply set up a legal structure, you must be able to prove that the company is doing what it says on the tin.

Tax Residency is Not the Same as Incorporation

Incorporation will provide a company with a legal existence in that country. However, tax residency will be dictated by the laws of that country and any agreement between countries.

Depending on the country, the company may be tax resident based on incorporation or if the central management and control is located elsewhere. Some countries will require the company to show that key decisions are made in that country. Therefore, there can be conflicting opinions on where the company will be tax resident, if the company is incorporated in one country, the management, directors and shareholders are in another country.

This can be a real issue for holding companies. While the company might have been established to own shares in operating companies, receive dividends, provide finance to the group or hold IP, this can be a legitimate business activity even if there is a small number of staff. However, depending on the laws that apply to the company, the type of income and if the structure meets the requirements for substance, this can impact on how the company is taxed.

A certificate of incorporation or tax residency certificate may help with proving a company's position, but it cannot be guaranteed that all tax authorities will accept this. They can investigate the facts, purpose and how decisions are made.

Where Effective Management is Made

Often the key issue will be where the company is effectively managed. Tax authorities can investigate where the directors meet, who has overall approval for major transactions, where decisions on financing are made and whether the board have any independent judgment.

If the company only has minutes to prove that decisions were made in a certain country, this may not be enough. If there are emails or other correspondence showing that the decision was not made in that country but approved, then this may cause issues. Directors may also be appointed locally to comply with local requirements, but if they are not heavily involved in the company, this could be questioned.

It doesn't necessarily mean that all decisions have to be made physically in the country of incorporation. Many international companies will have remote management, regional directors and travelling directors. However, the key issue is how the laws of that country will impact on where the company is resident.

Having clear lines of delegation, properly constituted board meetings, commercial justification for major decisions and ensuring directors have access to the right information can all help to reduce any uncertainty. The documents should show genuine governance and not an administrative process to ensure the company falls into the desired tax position.

However, if the founder or parent executive is overseas and making all material decisions for the company, despite it being an independent subsidiary, this can cause an issue. If the local directors aren't heavily involved in the company, this could be a problem.

Corporate Substance

Corporate substance is often a hot topic. While having an office, staff and spend can be a factor, it depends on what the company is doing and the laws that apply.

If the company is trading and has a lot of front facing activity, then it will likely have a very different structure to a company that holds investments or receives dividends. If the company is providing finance, it may need to have staff or external expertise to manage the credit risk, liquidity and lending decisions. If the company is holding IP, then there may be questions around who is developing, improving, maintaining, protecting and exploiting the IP.

The amount of local presence required will depend on what the company is doing, what risks it is taking and what decisions it is claiming to be making. Just because the company has a large office, doesn't mean it is genuinely managed there. Likewise, if the company is lean, this does not mean it is artificial.

In the United Arab Emirates it is important to understand the difference between regulation and tax. Companies incorporated in a free zone will often have additional licensing, reporting and substance requirements. To qualify as a Free Zone Person and receive the relevant corporate tax treatment, companies must comply with the requirements set out in the UAE corporate tax regime. This includes substance requirements. Having a company in a free zone does not mean it will be exempt from corporate tax.

In other countries, there may be different requirements due to the economic substance laws, local anti-avoidance rules and international requirements.

Beneficial Ownership

Tax authorities and financial institutions are increasingly looking to understand who the ultimate natural owners/ controllers of the company are. This is to improve transparency of the company structure and understand whether they are compliant with tax requirements, financial crime risks etc.

A company may be owned by another company, which is owned by a trust, foundation or multiple entities. While this can be legitimate for succession planning, holding assets and investment management, it can cause issues if the ownership cannot be explained, proven and matches with the company's stated activities and tax position.

It is important to understand that beneficial ownership should not be confused with legal ownership or management. The company may be owned by a shareholder, but not have full powers. Or someone may not be a shareholder but have control due to contractual rights, voting rights etc. The definition and disclosure requirements depend on the laws that apply.

If there are discrepancies between the company register, bank details, tax returns and information shared between authorities, this can cause issues. If there are hidden controllers, nominee arrangements or ownership changes around key events, this can cause issues.

Companies should have clear ownership information and a reason for the layers of ownership. If there are trusts or foundations, the roles of the founder, trustee, protector, beneficiary and any other controllers should be understood. There are varying requirements for transparency and just because the company has disclosed to one authority, this doesn't mean they will be compliant with all.

Cross Border Payments

Corporate substance can be an important issue when there are payments between related parties in different countries. Depending on the laws of the country, dividends, interest, royalties, management fees and service payments may be subject to withholding tax, transfer pricing requirements or other restrictions.

To qualify for relief under a treaty, the company may need to prove that it is a resident and entitled to the benefit. Tax authorities may also want to understand if the company is the beneficial owner, there is substance to the arrangement and if there are any anti-abuse provisions.

Beneficial ownership can be a key point, especially with passive income. If an intermediary is receiving the dividends or interest but is contractually or practically obliged to pay to another party, it may be hard to prove it has the income in the way intended. However, this depends on the wording of the treaty, local laws and facts.

Many treaties influenced by the OECD multilateral instrument include a principal purpose test. If one of the principal purposes of the arrangement was to obtain the benefit, this can limit the benefit received. Other treaties will have their own limitation of benefits provisions or anti-abuse provisions.

Transfer pricing can also cause issues. Charges within the group will need to be analysed to see if they are commensurate with the functions performed, assets used and risks taken. If the company is receiving high management fees or royalties but does not have appropriate staff or decision making processes, this could cause issues. Whilst it is important to have the right documentation and wording in place, this cannot replace evidence of economic activity.

Increased Information Sharing

With increased international collaboration, companies will find it harder to hide behind information gaps. The OECD Common Reporting Standard enables automatic sharing of financial account information between countries that participate. Country by country reporting means that tax authorities will have information to understand how a multinational groups income, tax and business activities are distributed globally.

While this will not necessarily mean the company is non-compliant, it means tax authorities can compare information from different sources.

Tax authorities will also have information from local filings, beneficial ownership registers, banking information (under the relevant legal processes), transfer pricing documentation and treaty information. If there is a mismatch between profits and where staff, assets or management are, this could cause issues. However, this needs to be viewed in the context of the company.

For multinational groups, if there are any disputes, this can cause additional tax, interest, penalties, lengthy investigations and litigation. There may also be double taxation if both countries are claiming. Whilst there may be relief available via local processes, mutual agreement procedures in tax treaties or other processes, it can take time to resolve and there is no guarantee.

Creating a Solid International Structure

Start by understanding why you need an entity. What role will it play? What risks is it taking? How does it fit into the wider group? This should influence why you are choosing that country.

Ensure the governance matches what the company is responsible for. Directors should have the right powers and access to information. Major decisions should be properly documented. If key executives are working from another country, the group should consider whether they will have an impact on where the company is resident.

Consider substance in relation to transfer pricing, beneficial ownership disclosure, treaty eligibility and licensing requirements. Consider whether your banking, contracts, accounts and tax returns are all consistent.

Don't just look at incorporating or setting up a new operation. If there are any changes in leadership, key executives moving, acquisitions, new finance arrangements or changes in where business is being carried out, this could impact on the tax analysis. Something that was appropriate when setting up may need to be reviewed.

Corporate Substance is Now a Strategic Consideration

While international tax planning is a legitimate part of structuring your business, countries will always try to attract investment by providing predictable regulation, infrastructure and access to markets. However, there is increased focus on ensuring that arrangements are not trying to plan tax in a way that does not reflect the economic reality.

Investors will want to ensure that the legal structure, management, ownership and activities of an entity supports the tax position.

A registered address will be required in many countries, but this alone will not help with any of the issues around residency, control or tax benefits. As there is increased transparency and enforcement across borders, having a solid structure with a commercial purpose and real activity will be more beneficial.

As a family business grows and goes international, consideration needs to be given to where assets should be held and owned, and how to pass control to the next generation. As a manufacturing business, you may have a manufacturing company in 3 different countries, IP held in another country, investments elsewhere and family members living in different legal jurisdictions. Your structure can have implications on your tax position, liability and availability of funding, and can impact on how a succession dispute is resolved.

There is no one-size fits all approach to choosing a jurisdiction for your international family business. If you choose a jurisdiction with favorable tax rates for your company, you may get issues with limited certainty in the courts relating to ownership, high compliance requirements from the banks and conflicting inheritance rules. You may also find that a complex holding structure will cause unnecessary costs due to lacking commercial rationale.

The key consideration is to ensure you have a structure that reflects how you want to own your business, based on how you operate, make decisions and wish to protect your assets.

Separate Business Assets

Firstly, you need to consider separating the assets used to run your business from those amassed. This can include your operating companies. These companies will have employees, contracts, debt, stock and take on business risk. The family wealth could include shares in these operating companies, investments, property, cash and IP. By ensuring these are legally separated, you can limit risk and easily manage ownership.

Generally it would be best to have the assets and liabilities held by your operating company. For example, if you have a trading subsidiary this may own the stock and employees. However, your property may be held by a separate property company. The shares may be owned by your parent company. Whether this is suitable will depend on your local laws, funding requirements, tax implications and the commercial relationship between your companies.

By separating property or other valuable assets from your trading company, you can reduce some of the risks associated with trading. However, this may not always be the case. You may have guarantees, security, intercompany loans and contractual obligations which mean that there are still liability issues. The courts may also look at transactions which are designed to frustrate creditors and insolvency laws may allow certain transfers to be challenged.

If you are looking to move assets when there has been a financial dispute or when insolvency is likely to occur, this will be looked at closely. Ideally you should put in place your ownership structure when your business is in a strong financial position.

Choose a Holding Company with Purpose

Having a holding company can give you one place to own your subsidiaries across multiple countries. This can include receiving dividends, owning shares, IP and managing your investments whilst your day-to-day operations are run by locally incorporated companies. If you have interests in the Gulf, Asia and Europe, having a parent company can make reporting easier and allows you to easily make changes to your ownership.

When choosing a jurisdiction, you should consider more than just the tax rates. Consider how dividends and capital gains are treated, the level of withholding tax, access to tax treaties, foreign controlled entity rules, corporate governance requirements and how easy it is to distribute funds to shareholders. There may be exemptions to tax; however there may be restrictions on ownership levels, time held, qualifying income and other requirements.

Consider the legal structure of your holding company. The shareholders may benefit from limited liability; however the parent company will have obligations to fulfill from their activities and assets. Directors will have duties to fulfill in accordance with the law governing the entity. Transactions between related companies should be well documented and commercially justified.

Whilst you may want to hold shares in a jurisdiction that is attractive, you may not want to employ people, develop products or have regional management there. Whilst you can create an entity, this does not automatically mean the entity will have a tax residency status or benefit from tax treaties. Increasingly authorities will look to see where strategic decisions are being made, who controls the company and if there are substantive activities.

Generally for international families the best structure is one that can clearly explain the legal and commercial rationale to regulators, banks, tax authorities and business partners.

Jurisdiction in Relation to Assets

Real estate is generally governed by the laws of the country where it is located. This can include rules around registration, transfer, inheritance and security. If your foreign holding company owns property through a local subsidiary, this can affect how you fund, tax and succeed.

IP can create issues. A group may choose to have a dedicated company own their trademarks, patents or software. This needs to be carefully considered as there are considerations around transfer pricing, where development and management occur and the legal ownership. If you move IP to a low tax jurisdiction but it lacks economic substance, this can cause issues with tax authorities.

Investments and cash should be considered. The bank where the account is held, legal ownership and tax residency of the beneficial owner can be relevant. Payments across borders may cause reporting requirements, withholding tax and be looked at under anti money laundering rules. Banks may ask for evidence relating to the source of wealth, source of funds and purpose of transactions. If there are multiple entities and family members involved, they may ask for this information.

While not all assets will fit into one jurisdiction, the aim is to have a clear structure.

Trusts & Foundations

Whilst having a holding company can help you with the corporate ownership, it may not address your family wealth, incapacity or succession concerns. Having a trust or foundation can help with the management of assets across generations. However there can be significant legal differences between jurisdictions.

A trust generally occurs when assets are transferred by the settlor to trustees. The trustees will hold and manage the assets for the benefit of the beneficiaries or for specific purposes outlined in the trust deed. Depending on the governing law and terms of the trust, this can provide continuity of management, specify conditions for distributions and avoid splitting assets between individual heirs. This will depend on the trust being valid, assets being properly transferred and the provisions being enforceable.

A foundation is typically a standalone legal entity created under legislation which allows for assets to be used for specific purposes or beneficiaries. The foundation will have a constitution or charter setting out how it operates and how benefits can be distributed. This can be attractive for families who want a formal structure to manage their family.

Not all trusts and foundations will guarantee that information will remain confidential, neutral on tax and protected from creditors. There could be disclosure requirements, beneficial ownership registers, tax reporting requirements and court orders requesting information. There could also be issues with forced heirship, matrimonial claims and insolvency.

It is important to consider the difference between legal ownership and control. When assets are moved into a trust or foundation, the founder may no longer have the same ownership over the assets. If they have significant control over the distribution of assets, investment decisions or removal of fiduciaries, this may have implications under the relevant law or tax. Families should understand the implications of this before moving control.

Plan for Succession

Often the ownership structure will be revealed to have issues when succession occurs. The founder may own the shares personally, with the children working in different areas of the business or in different countries. Some may wish to grow the business, whilst others want dividends or to sell in the future. Splitting equally may not provide a viable business structure.

You should consider separating economic rights from management control. One family member may be better suited to hold a management role, however other family members may have an interest in the shares. Shareholder agreements can be used to clarify voting rights, transfer, pre-emption rights, deadlock situations and exit. This should be reflected in your company articles and other constitutional documents.

Wills, trusts and foundations can be used alongside your corporate documents. However you should ensure they are carefully drafted. Assets may be governed by your will, however if the shares are held in a separate vehicle they may fall under different rules. If you have property in a foreign jurisdiction, it may be subject to local succession rules. Movable assets may be governed by domicile, habitual residence, nationality and other factors.

If you have family members in the UAE or other jurisdictions with specific succession rules, you should consider what applies. Foreign instruments may not be recognised, there may be registration requirements and there could be conflicts with the governing laws.

A strong plan should also consider incapacity, disputes and unexpected deaths. By having clear appointment processes, independent professionals and agreement on how to resolve disputes, you can ensure you maintain continuity in your business.

Tax, Substance & Transparency

With increasing scrutiny, tax authorities will look at beneficial ownership, related party transactions, cross border payments and profit allocation. Reporting requirements and information exchange requirements have reduced the ability to hide assets behind foreign ownership.

Your holding company should meet the requirements of the tax residency it claims to be and any reliefs sought. If there are transfer pricing requirements, related party transactions should be at arm’s length. The OECD have developed an international tax framework which has influenced national legislation and practices. However the requirements will depend on how the countries implement it.

If your entity is claiming to be providing financing, management or IP functions, this is an important consideration. Considerations could include staffing, decision making, spend, property and activities carried out. Just having a registered office and annual filings may not be enough to show a company is carrying out the activities it is said to.

Consider the cost of compliance. Having multiple entities will mean you will have accounting, tax, company secretarial, banking oversight and regular reviews. Whilst you may save tax in one jurisdiction, you may incur extra costs and reporting requirements in others. Consider the overall impact.

Create a Structure that Will Last into the Next Generation

The most efficient international family business structures are usually not the most complex. Each entity should have a clear purpose, the ownership should be easily tracked and the documents should reflect the true intentions of the family. A holding company should not be created purely because a jurisdiction is popular. A trust should not be set up without understanding the rights being passed on. A foundation should not be seen as a replacement for good corporate governance.

Start by identifying what assets you have, countries you operate in, tax residencies, funding requirements and succession aims. Speak to legal and tax advisors to understand what structures may be suitable. Conflicts with the different jurisdictions can be identified. Consider what the costs will be to implement and manage. Consider what will happen if you need to exit or restructure in the future.

Regular reviews are a key consideration. As family members move, businesses grow, tax laws change and younger generations take on responsibility, your structure may no longer be suitable. A structure which was suitable for your founder in one country may not be suitable for your business now it has foreign subsidiaries.

Ultimately you need to consider how you want your family to own their global assets. You want to mitigate risk, make decisions efficiently and pass wealth between generations without creating unnecessary legal complexity. Whilst the jurisdiction is important, your structure should be of a high quality. This means the companies, trusts, foundations and succession will all work well together.

If a UAE-based business is looking to invest overseas, there are several factors that should be taken into consideration to ensure this can be done correctly.

A UAE entity may wish to invest in a foreign business by purchasing shares, setting up a subsidiary, joint venture, commercial property or intellectual property. As the UAE is a business hub in the region with global banking and investment relationships, it can be a natural home for a business wishing to invest overseas.

However, whilst a business may wish to trade internationally, there may be various corporate, regulatory and tax elements to consider. An investment may seem simple to complete from Dubai or Abu Dhabi, however, you may need to consider corporate approvals, regulatory and tax requirements. The investment may also be dependent on what your UAE company is licensed to do, its constitutional documents, shareholders and the nature of the investment.

You should always consider if the investment is legally allowed, approved and commercially viable.

UAE Entity Approval

The first thing to consider is the legal status of your entity. Depending on your entity being incorporated in a UAE mainland jurisdiction, free zone entity or operating in a financial free zone, there may be different requirements.

Your entity’s trade licence will not always tell you everything you need to know. You should consider the Memorandum and Articles of Association, shareholder arrangements and any relevant regulatory requirements to check whether the investment is permissible. If your entity was set up for a very specific trading purpose, you may need to ensure that it has the capacity to act as a holding or investment vehicle.

Depending on your governance documents, you may need board approval, shareholder approval or other approvals. If your manager/director is signing documents abroad, you should ensure they have the correct approvals and that the documents will be accepted at the destination country.

It is best to consider these requirements before you reach an advanced stage in negotiations. If you are buying from a foreign seller, bank or joint venture partner you may need to provide them with certified constitutional documents, current licence, proof of ownership and correctly executed resolution. This can cause delays and extra costs as you may need to have documents attested, legalised, translated and notarised.

Direct vs Holding Structure

Consider whether you want to invest directly or whether your UAE entity should utilise a holding company in another jurisdiction. If the investment is a simple one, and the country allows foreign ownership, then investing directly may be a good option. This will ensure you can comply with registration, tax and other requirements in the target country.

However, if you expect to purchase multiple businesses, bring in other investors, reduce exposure to the operation and simply want to hold valuable assets, using a holding company may provide some benefits. This can also assist with dividend, shareholder loans and ownership. Whilst there may be many benefits this will depend on what you are doing commercially and what the laws say.

If you are creating a new entity in another country you will need to consider the extra administration. Costs will incur to incorporate, file annually, have local directors, accounting and banking requirements and tax compliance. Consider how decisions will be made, where the management will be based and whether the holding company actually has a business purpose.

If you are creating the holding company purely for tax reasons, you may not get the benefit you are expecting. Tax authorities may look into who really owns the investment, where the effective management is taking place, what the holding company is doing and whether it can benefit from any treaties. If the company is just a shell with no real decision making processes, you may have issues with how the dividends, interest or capital gains are taxed.

Ensure that you are using the correct structure to help with the real purpose of the investment.

Foreign Ownership & Restrictions

Before committing any capital to an investment overseas, a UAE entity should consider what the laws are in the target country. Foreign ownership can vary greatly between different countries. Some countries will allow 100% foreign ownership in most sectors. Others may have restrictions, a requirement to have a local partner or have certain activities only for local investors.

There may be restrictions in place for some strategic industries, financial services, telecoms, natural resources, defence related, agricultural, media or property. You may need to have a licence for a specific industry, approval from an investment body or comply with national security requirements. If you are buying an existing business, you may also need to consider merger control or competition law requirements.

Consider what you are trying to do. Even if the investment is permissible you may need approval to allow the foreign shareholder to vote, appoint directors or transfer funds. Some jurisdictions will have different rules for passive investments.

If the investment is property related, you should consider whether you can own land, commercial property or development assets. This will depend on where it is, your nationality/corporate status, what you intend to do with it and what the title is. If it is a lease, concession or development rights you may not have the same protection.

Speak to your local counsel to understand what restrictions are in place and how long it will take to get approval. If you need regulatory approval, you should consider what will happen if there are delays, rejection or conditional approval in your acquisition documents.

Banking, Source of Funds & Transfers

Even if the investment is legally permissible, you may experience delays if you have not considered your banking requirements. UAE banks and the recipient foreign institution may require you to provide evidence of what the transaction is for, source of funds, ownership of the entity and ultimate beneficial owners.

This could include audited accounts, bank statements, tax records, resolutions, sale and purchase agreement, details of the target business and why you are doing the deal. If the funds are coming from a sale of assets, shareholder contribution, loan or dividend you should be able to show what the transaction is.

Financial institutions will have controls in place to ensure they understand their customers and the transaction they are undertaking based on the risk standards. You may need to consider sanctions, politically exposed persons and enhanced due diligence. Just because you are transferring between two accounts in your name will not mean that you won’t have any issues. The company should not assume that the transfer will be okay.

Ensure that you have enough time in your agreement to pay for the investment. This should allow time for the banks to carry out their checks, foreign exchange and any regulatory approvals. You should ensure that the banks are happy with how you are paying. If you need to go through intermediaries or multiple currencies this should be considered.

If you are using shareholder loans or capital contributions, ensure that you have clear documentation. Ensure that you have clearly defined what is equity, debt, payments for services and distributions. If you are transferring funds informally and stating it is a loan you could have issues with the accounting, tax or regulation if it does not fit.

Tax Considerations

Before finalising your investment structure you should consider the tax implications. A UAE entity may need to consider how foreign income is treated in the UAE. You may also need to consider tax in the country you are investing in. This will depend on what type of income you are getting, what status you have, what legislation applies and any relevant agreement.

The UAE has rules in place around foreign sourced income and participation exemptions. You cannot assume that any dividend or capital gains received from overseas will be exempt. You should consider what type of ownership you have, what holding period applies, what is subject to tax (if applicable) and any other qualifying factors.

In the target country you may have withholding tax on dividends, interest, royalties and service fees. Your foreign subsidiary may also be subject to corporate income tax, indirect tax, payroll and local reporting. If there is a tax treaty in place you should consider whether the relevant entity can benefit from it and if you need to provide any residence certificates, declaration or other documentation.

If you are investing in a related company, ensure that any management fees, financing, royalties or other payments are reflective of what is being provided. You may need to ensure that any related party transactions comply with transfer pricing rules and have documentation to show how they have been decided.

The UAE has rules in place around topping up tax for large multinational enterprise groups. If your group falls within the scope you should consider this. You should also consider the tax rules in the other countries your group operates within.

You should ensure that the structure you have in place will be tax efficient in all relevant jurisdictions. You should also consider how much it will cost to get professional advice and ensure that you are compliant. This should be balanced against what you expect to get from your investment.

Beneficial Ownership & Reporting

When investing overseas you should ensure there is transparency around ownership and control of the entities. Your UAE entity may need to have accurate beneficial ownership information. This will depend on the legal status and what register you are registered with. Any foreign subsidiaries or holding companies may have different registers, thresholds and timelines.

You may need to provide information on ultimate beneficial ownership. This could be anyone who ultimately owns or controls the business either directly or indirectly. This can become more complicated if there are trusts, nominees or multiple layers of ownership across several countries.

There may be reporting requirements that need to be met. If there are changes to shareholders, directors, registered office or beneficial ownership you may need to notify. Some jurisdictions will require annual returns, financial statements, tax declarations and foreign investment disclosure. If you fail to meet these requirements you may incur penalties, restrictions to your filings or issues when selling your investment.

Ensure that you have clear documentation showing the ownership chain, who has the authority to make decisions and supporting documentation. This will help with any regulatory bodies, banks, auditors, tax advisors and potential buyers carrying out due diligence.

Management, Liability & Exit

Ensure that your legal structure reflects how you will manage your investment. If you are taking a minority interest or entering a joint venture ensure that your shareholder agreement has provisions in place for board representation, reserved matters, information access, funding, dividend policy, restrictions and dispute resolution. Without clear contractual protections you may have little influence over decisions affecting the value of your investment.

Consider what liabilities exist with the target business. Are there any outstanding tax claims, employment issues, litigation, regulatory breaches, IP rights or contractual restrictions? If you are purchasing an asset you will likely have less exposure to the company’s obligations, however if you are purchasing shares you will generally be exposed to the company’s obligations depending on the law and contractual protections.

Consider what will happen if you want to exit. There may be foreign ownership restrictions, pre-emption rights, regulatory approvals, capital gains tax and exchange control requirements. Your shareholder agreement should have practical dispute resolution in place. If appropriate there should be provisions in place to handle a sale, buyout or transfer to a third party.

Consider if you want to resolve any disputes locally or through arbitration. What law will apply and can any judgment/award be enforced in the location of the assets? Whilst you may have a clause that looks comprehensive, if it does not consider the jurisdictions you may find it has little practical use.

Overall Risk

The main risk you may face when investing overseas is not that it is prohibited, but that there are multiple factors to consider. You may forget to consider corporate approvals, the bank may ask for further evidence, there may be foreign ownership restrictions or tax assumptions may not be correct.

If you are a UAE business you should have a structured approach and speak to your corporate lawyer, tax advisor, banking contacts and local counsel in the target market. This should ensure that your structure is permissible, you have regulatory approval, the funds can be transferred, tax implications, reporting requirements and exit options.

Ensure that you are not over complicating things. If you are only taking a small minority interest you may not want to over complicate. However, even a small investment may face ownership restrictions, banking issues and unexpected tax costs.

Whilst the UAE can be a great place to expand internationally, the laws in the markets your companies are investing in will still apply. Having a clean structure with clear responsibilities for each entity and factoring in the costs to comply will give you the best transaction.

Intellectual property has become one of the most valuable assets on many corporate balance sheets, even where its value is difficult to quantify. A technology company may derive much of its value from its software and algorithms, a consumer business from its trademarks and brand reputation and a manufacturer from its patents, industrial designs and proprietary production methods. As companies expand globally, the question of whose entity should own intangible assets and where that entity should be established has become an important part of international corporate structuring.

The choice of a jurisdiction for holding intellectual property is often framed as a tax-planning exercise. A company may look to transfer its intellectual property to a subsidiary in a favoured tax regime and then licence the rights to operating companies in other markets. But the legal and commercial position is more nuanced. Ownership must be established, royalty arrangements must withstand scrutiny and the company claiming the income must have a credible role in managing the assets. A structure that appears attractive on paper can prove costly if it conflicts with the way the business operates.

Ownership Is Different From Protection

The first distinction is between owning intellectual property and protecting it. A company incorporated in one country may own intellectual property used across the world, but the rights held do not enjoy universal protection. Patents, trademarks and industrial designs generally depend on protection granted or recognised in particular territories. Copyright follows different rules, with international conventions providing important cross-border recognition, but the scope and enforcement of rights must still be carefully considered.

A holding company in Singapore, the United Arab Emirates, Luxembourg or another jurisdiction does not, simply by being incorporated there, secure a global monopoly over a brand or invention. The owner may still need registrations in the markets where products are manufactured, sold or licensed. It must also consider whether local law recognises the relevant assignment, whether registrations are correctly recorded and whether contractual rights can be enforced against infringers.

For international groups, the question is not merely where to register a company, but which entity should hold each category of intellectual property, which operating companies need permission to use it and how those arrangements will work across the jurisdictions concerned. A single central owner may suit a business with a unified global brand, but a group operating through joint ventures, regulated subsidiaries or businesses acquired over time may need a more differentiated structure.

The Commercial Logic Behind A Holding Company

A dedicated intellectual property company can isolate valuable intangible assets from day-to-day operating risks. An operating subsidiary may manufacture products, employ staff, enter customer contracts and incur liabilities, while another group entity owns the brand, software or patents and grants licences to businesses using them.

Such separation can provide clearer financial reporting, make licensing arrangements easier to administer and provide a more orderly framework for acquisitions, joint ventures and future investment. A prospective buyer may find it easier to assess a business when the ownership of its principal technology, trademarks and licensing rights is documented and distinct from its operating activities.

The structure is not automatically protective, however. Moving intellectual property into a separate company does not guarantee that creditors, insolvency practitioners or courts will disregard every claim against it. The outcome will depend on the relevant law, the validity of the transfer, the circumstances in which it was made and any guarantees, security interests or contractual commitments attached to the assets.

There may also be practical disadvantages. A separate owner requires governance, accounting, legal documentation and administration. Where a business has only one product, operates in a single market and has limited licensing activity, the additional entity may create complexity without a proportionate commercial benefit. The structure should follow the business and not precede it.

Tax Benefits Must Be Tested Against Economic Substance

Tax treatment continues to be relevant, particularly where intellectual property generates substantial royalty income across several markets. Jurisdictions differ in their treatment of royalties, corporate profits, withholding taxes, deductions and incentives for research and development. Some offer preferential regimes for qualifying income generated from patents or other eligible intellectual property, while others focus tax relief on expenditure incurred in developing the underlying technology.

But an attractive headline rate tells only part of the story. The company must establish whether the income qualifies for the relevant treatment, whether anti-avoidance provisions apply and how payments will be taxed in the countries from which they originate. A royalty that is deductible in one country may attract withholding tax in another. Treaty relief may not be available if the recipient does not satisfy the applicable conditions, including beneficial ownership or anti-abuse requirements where relevant.

Economic substance is equally important. Tax authorities increasingly look at whether the entity receiving the income performs meaningful functions, controls relevant risks and has the capacity to manage the assets it claims to own. Under the Organisation for Economic Co-operation and Development (OECD)’s transfer pricing framework, legal ownership on its own does not grant a company rights to all the returns generated by an intangible. The analysis looks at functions associated with developing, enhancing, maintaining, protecting and exploiting the asset, plus the parties’ contributions, contractual arrangements and actual conduct.

A company that merely holds legal title while engineers, researchers and commercial decision-makers operate elsewhere may struggle to justify retaining the bulk of the profits. The appropriate allocation of income will depend on the facts, including who funds development, who makes important decisions, who controls risk and what other group entities provide.

Choosing Between The UAE, Singapore And European Structures

For businesses operating across the Gulf, Asia and Europe, the United Arab Emirates may be considered as a location for an intellectual property holding company. Its position as a regional business centre can be commercially useful where senior management, licensing operations or regional headquarters are based there. Yet incorporation in the UAE does not by itself establish eligibility for a particular tax outcome. The company must assess the applicable corporate tax rules, qualifying income conditions, transfer pricing obligations and any relevant cross-border withholding taxes.

Singapore may be considered by groups with substantial Asian operations, regional management or commercial relationships in the region. Its suitability depends on the business’s actual activities, the legal and tax treatment of the assets and the requirements of the countries in which the intellectual property is exploited. A company wishing to use Singapore as a regional licensing centre needs to consider whether the location fits its management arrangements and commercial strategy and not treat incorporation as an isolated tax decision.

European jurisdictions, including Luxembourg, may also factor into international structures where financing, investment funds, acquisitions or established European operations influence the choice. Their legal systems and treaty networks may offer advantages for particular groups, but their regulatory obligations, tax rules, substance requirements and the costs of maintaining the structure need to be examined.

There is no universal ranking. A technology group licensing software across Asia may have different needs from a consumer brand expanding through Gulf franchisees or a pharmaceutical company commercialising patents in several regulated markets. The right jurisdiction is the one that aligns legal ownership, management, commercial activity and tax treatment with the business’s operating model.

Royalty Payments And Transfer Pricing

Once ownership has been established, the next challenge is pricing the right to use the asset. A subsidiary that manufactures goods under a group trade mark or uses centrally owned software may pay royalties to the intellectual property company. Where entities are related, the terms generally need to comply with applicable transfer pricing rules and reflect the arm’s-length principle.

That can be difficult, given that intellectual property is often unique. Comparable transactions can be scarce and the value of a patent or brand can change as markets develop, competitors emerge or technology becomes obsolete. The parties may need to consider licensing comparables, projected earnings, the functions performed by each entity and commercial alternatives.

The paperwork must align with the transaction. Agreements should identify the rights being licensed, the permitted territories, the duration, exclusivity, royalty calculation, payment obligations and responsibility for enforcement. A trade mark licence may also require quality-control provisions, while a software licence may require rules on updates, cyber security, data and derivative works. If the operating company contributes substantially to developing a local brand or technology, that contribution may affect the appropriate allocation of returns.

Cross-border payments raise further questions, including withholding tax, exchange controls, deductibility, documentation and banking requirements. An arrangement that cannot explain itself clearly to tax authorities or financial institutions can find itself delayed despite a legitimate underlying transaction.

Transfers, Valuation And Existing Rights

Transferring intellectual property to a new holding company can be a complex exercise. The existing owner must have the right to transfer the asset and the transfer may involve written assignments, registration updates, consent from lenders or contractual counterparties or compliance with employee-invention rules. Software and creative works can involve several contributors, and trademarks can be affected by licensing obligations and rules governing goodwill.

Valuation is another concern. A transfer between related companies can trigger tax consequences, particularly where a valuable asset crosses borders. The price must be supported by an appropriate valuation method and the applicable transfer pricing rules. Tax authorities may question a transfer made for a nominal amount where the asset has substantial commercial potential or subsequent changes to royalty arrangements and the allocation of profits.

Businesses should also review existing licences, security interests, co-ownership arrangements and restrictions imposed by investors or public funding agreements. A patent may be owned by one entity but subject to an exclusive licence granted to another. A brand may be registered in the parent company’s name while franchise agreements give third parties extensive contractual rights. A restructuring that overlooks these interests can create disputes.

The Global Minimum Tax Changes The Calculation

For large, multinational groups within its scope, the OECD’s Pillar Two framework offers an additional consideration. The rules are designed to ensure a minimum effective tax rate of 15% in each relevant jurisdiction, subject to detailed scope provisions, calculations, exclusions and safe harbours. As a result, moving intellectual property income to a lower-tax jurisdiction may not deliver the expected overall benefit for a group covered by the regime.

The rules do not eliminate the need to compare jurisdictions, and their effects will vary according to the group’s size and structure. But they reinforce a broader shift in international tax planning – the nominal tax rate is only one element of the analysis, and compliance costs, access to talent, the treatment of research and development, treaty positions and the ability to demonstrate genuine business activity can be equally significant.

A Structure Built Around The Asset

The most effective intellectual property structure will begin with an inventory of the assets and the business model that depends on them. Companies should establish who created or acquired each asset, who owns it today, where protection is required, which entities use it and how its value is expected to develop. They can then compare potential jurisdictions against legal enforceability, tax treatment, operational substance, investor expectations and the costs of maintaining the arrangement.

For a start-up, direct ownership may be the most practical solution until international licensing or investment makes it worthwhile. For a mature multinational, a central holding company may help organise global rights and revenue flows, provided it is supported by credible governance, agreements and transfer pricing arrangements. A family-owned group may place greater emphasis on succession, licensing continuity and protection against disputes among shareholders.

Intellectual property can move through assignments and licences, but the legal rights, tax consequences and commercial relationships surrounding it do not disappear at the border. Choosing where to hold it is ultimately a decision about who controls the asset, who creates its value and how the business intends to use it. The strongest structure is not necessarily the one with the lowest tax rate – it is the one that can still be defended by investors, regulators, tax authorities and courts.

Foreign investors entering the United Arab Emirates are faced with a choice that can have consequences far beyond the simple registration of a company. The decision on whether to take the form of a mainland entity, a free-zone company, a branch, a subsidiary, a joint venture or a holding structure defines how the business can operate, who controls it, where liabilities sit and how profits and capital move through the group.

The UAE provides several routes into its economy, underpinned by a mix of federal legislation, emirate-level licensing systems, free-zone regulations and sector-specific rules. The variety of options is attractive to international businesses, but it means structural planning is key. A company set up to undertake domestic trading may not prove the most suitable vehicle for a regional headquarters, a regulated financial operation or an investment platform looking to hold assets across several countries.

Foreign ownership liberalisation has broadened the options available for mainland businesses, while free zones continue to offer distinct commercial and administrative advantages. However, no structure can be universally superior. The choice must follow the proposed business activity, customer base, risk profile, financing needs and intended exit strategy, rather than assumptions about tax or incorporation costs alone.

Mainland Companies And Access To The Domestic Market

A company based in the mainland is typically licensed by the relevant emirate’s economic department or competent licensing authority. For businesses wishing to supply goods and services to customers across the UAE, bid for government contracts or set up a substantial local operating presence, this route offers considerable flexibility.

Many mainland commercial activities allow 100% foreign ownership, following reforms which removed the previous general requirement for Emirati majority shareholders in many sectors. However, the position must be checked against the precise activity and applicable legislation. Strategic-impact activities, regulated industries and some professional or commercial operations may be subject to additional ownership, approval or licensing conditions.

The main advantage of a mainland structure is that it can support direct engagement with the domestic economy without the need for a separate local distributor just because the company is foreign-owned; it can be appropriate for retailers, contractors, professional service providers, manufacturers and businesses whose employees, premises and customers are primarily in the UAE.

The corresponding obligations may include office or premises requirements, employment and immigration compliance, activity-specific permits and continuing licence renewals. Costs and procedures vary by emirate, legal form and business activity. Investors should also distinguish between permission to conduct business and permission to undertake a regulated activity; a commercial licence does not itself authorise banking, insurance, healthcare or other specially supervised operations.

Free-Zone Companies And The Limits Of Advantages

Free zones remain a key element of the UAE’s investment offer. They can provide foreign ownership, specialised infrastructure, streamlined registration procedures and a business environment, tailored to industries such as logistics, technology, media, commodities, financial services and manufacturing.

A company based within a free zone may be particularly appropriate for an international trading business, a regional service hub or an enterprise whose operations are centred on that zone and overseas. Some zones can offer a mix of facilities tailored to particular activities, plus access to warehousing, ports, industry networks or sector-specific regulatory frameworks.

The distinction between a free-zone licence and permission to conduct business elsewhere in the UAE demands close attention. A free-zone company should not be assumed automatically to be permitted to trade anywhere on the mainland. For some activities, emirates and frameworks, it may require a mainland branch or company, a relevant permit, an authorised distributor or another compliant arrangement.

Tax treatment also requires more than a simple comparison of headline rates. The UAE’s corporate tax regime applies to free-zone entities, although qualifying free-zone persons may benefit from 0% rate on qualifying income, should they satisfy the statutory conditions. The treatment of non-qualifying income, transactions with mainland counterparties, substance requirements and other compliance obligations must be assessed under the applicable rules. Free-zone incorporation does not guarantee the preferential rate.

Investors should therefore compare the commercial benefits of a particular zone against its licensing restrictions, operating costs, customer access and tax conditions; a low-cost registration may be less economical, should the company need additional licences or a separate mainland presence.

Branches And Subsidiaries: Two Different Risk Profiles

An overseas company looking to acquire a presence in the UAE may consider the option of a branch, rather than a separately incorporated subsidiary. Although the two arrangements can offer similar commercial purposes, their legal consequences are distinct.

A branch is essentially an extension of its foreign parent, operating in the UAE within the scope of its registration and approved activities. It does not normally possess a legal identity separate from that parent. As a result, the parent company may be exposed to liabilities incurred by the branch, subject to the relevant legal framework and the nature of the claim.

Branches can be appropriate for established international businesses wishing to extend existing operations into the UAE, while retaining centralised ownership and management. They can also be appropriate, should the parent wish to provide services, execute contracts or maintain a representative operating presence, without creating a separate subsidiary.

A subsidiary, by contrast, is a separately incorporated legal entity, typically in the form of a limited liability company or another permitted company form. It can enter contracts, employ staff, own assets and incur liabilities in its own name. The parent owns the subsidiary’s shares, but its obligations are generally separate from those of its shareholder, subject to guarantees, statutory liabilities, insolvency rules and circumstances that the corporate separation may be challenged.

For investors entering a new market, that separation can be of value; it can help ring-fence operational risks, accommodate local partners, allow third-party financing or see the UAE business sold independently. It is not an absolute shield, however, parent guarantees, intercompany arrangements, inadequate governance and failure to respect the entity’s separate legal status can undermine the intended protection.

The choice of a branch or subsidiary should therefore reflect the parent’s risk appetite, the nature of its contracts and whether the UAE operation is expected to become a separate business.

Joint Ventures And Allocation Of Control

A joint venture can provide foreign investors with local market knowledge, established distribution channels, technical expertise, capital or access to a partner’s customer base. It may take the form of a jointly owned incorporated company or a contractual collaboration, depending on the project and applicable law.

The structure can be particularly useful, should the investment require substantial capital, specialised local knowledge or long-term commercial relationships; it can also distribute investment risk between the participants, although the extent of that sharing depends on the agreed ownership, financing and contractual arrangements.

Ownership percentages alone do not determine control; investors must establish how directors are appointed, which decisions require unanimous consent, who controls budgets and bank accounts, how additional capital is raised and what happens, should the parties disagree. Intellectual property ownership, confidentiality, non-compete obligations, dividend policy and restrictions on share transfers also deserve attention.

Exit provisions are especially important; a shareholder may be unable to sell its interest at the desired time, should the agreement lack a workable transfer mechanism, valuation process or deadlock procedure. Rights of first refusal, tag-along and drag-along provisions, put and call options and agreed dispute-resolution mechanisms may help, subject to enforceability under the applicable law.

A joint venture should be designed around a commercial bargain; where one party supplies technology and another provides market access, for example, the agreement must deal with how those contributions are valued, protected and maintained throughout the relationship. Without that clarity, the partnership’s initial advantages can become the source of dispute.

Holding Companies And The Architecture Of Investment

A holding company serves a different purpose to an operating business. Rather than primarily selling goods and services, it holds shares in subsidiaries or other assets, enabling investors to organise ownership, governance and capital across a group.

A UAE holding structure can prove useful to investors, should they wish to manage several operating businesses, acquire regional assets or prepare for future expansion. Depending on the jurisdiction and legal form, a holding entity can centralise shareholder decisions, facilitate investment into subsidiaries and provide a framework for bringing in new investors.

It can also assist with succession planning and the separation of operating risks from the ownership of selected assets. The legal and tax consequences, however, depend on the assets held, the residence of shareholders and subsidiaries, the flow of dividends and other payments, and the substance and activities of the holding company.

A holding company should not be treated as a tax solution in isolation; corporate tax rules, withholding taxes in other jurisdictions, transfer-pricing requirements, economic substance considerations where applicable, beneficial ownership disclosures and banking due diligence can impact the arrangement. A structure that exists on paper, without sufficient governance or commercial rationale, may face scrutiny from tax authorities and banks.

Investors must also determine where the holding company should sit within the group; a UAE entity may be appropriate for regional management and investment, but a cross-border group may have reasons to retain an overseas parent or utilise different holding jurisdictions for particular assets. The answer depends on the overall legal and commercial design, rather than the place of incorporation.

Corporate Tax, Compliance And Regulatory Approval

The UAE’s business environment presents the relative accessibility of company formation, combined with a growing framework of tax, transparency and regulatory obligations. Corporate tax, VAT where applicable, accounting and record-keeping duties, beneficial ownership requirements, anti-money laundering controls and licensing conditions should be considered before the structure is finalised.

The relevant obligations vary, according to the entity’s legal form, activities, turnover, counterparties and jurisdiction; a company operating in a regulated sector may require approval from a specialist regulator, in addition to its commercial or free-zone licence. Financial services, insurance, healthcare and certain other activities can involve distinct authorisation requirements.

Cross-border groups should also consider transfer pricing and the commercial basis for transactions between related entities; management fees, royalties, shareholder loans, service charges and dividends can carry different legal and tax consequences. Banking arrangements can raise further questions on the source of funds, beneficial ownership, expected transaction volumes and the business purpose of the structure.

These issues are easier to address, at the point of planning rather than after incorporation; restructuring an existing business may require licence amendments, shareholder approvals, asset transfers, contract novations, tax analysis and regulatory consent. The initial savings from a choice of structure without considering future requirements may be outweighed by the cost of correcting it.

Choosing A Structure That Can Grow With The Business

The most appropriate UAE entry structure is the one that satisfies the investor’s commercial objectives, while being workable as the business grows; a mainland company may be appropriate for an enterprise focused on domestic customers, a free-zone company for international trade or a specialised operating base, a branch to extend an existing foreign business and a subsidiary to provide a separate platform for local operations.

A joint venture can bring together complementary resources, while a holding company can organise ownership and investment across several entities; the options are not always mutually exclusive. An investor may use a holding company to own a mainland operating subsidiary, establish a free-zone entity for regional services or create a joint venture for a particular project.

Before committing, investors should map out the intended activities, identify the required licences, confirm foreign ownership conditions, assess liability and financing needs, model tax outcomes and agree governance and exit arrangements; the plan should also consider the possibility of acquiring another business, bringing in new shareholders or selling the UAE operation.

The UAE offers multiple routes into the market, but incorporation is only the beginning; a well-designed structure ensures that the legal form matches the commercial purpose, protects the interests of investors and partners and leaves room for the business to evolve, without repeated and costly reconstruction.

An overseas company can have money in the bank and still be unable to send it to its owner. Its cash balance may exceed the profits that company law allows it to distribute. Even when such a transfer is permitted, with-holding tax, exchange controls or a challenge to the commercial basis of the payment might affect its value and timing.

Investors should understand the potential complexities associated with the route: a shareholder loan, subscription and management fee provide potentially different entitlements and obligations, despite identical payer and recipient. Funding choices made early on may affect the ability to extract the return later. The analysis should address the company's jurisdiction, the relevant status of the investor and actual purpose of the payment, rather than its description on the form. A convenient label cannot reconcile diverse arrangements.

Dividends are Constrained by Company Law and the Company's Position

Dividend capacity depends on the applicable company law rules and the company's finances. In Britain, section 830 Companies Act generally restricts distributions to realised profits after realised losses. A year's profit may therefore have been offset by losses previously incurred. Borrowing in itself does not create distributable profits: the relevant accounts need to be examined (including the required corporate approvals and the company's constitution) before the investor assumes the right to the balance.

Investment Funding Affects the Basis for Exit

Capital injections need to be documented in light of their final use. Subscription of shares creates an equity participation: it does not create a right upon the investor upon similar terms to a loan. Paying to reduce the shareholder loan or capital on the books can require a formal statutory reduction or other lawful mechanism to allow a repayment in certain jurisdictions. In Britain, by way of example, provision exists for a private company limited by shares to make a capital reduction on a special resolution and solvency statement, and court confirmation is available. The appropriate records of ownership, filing and any foreign investment approvals should be established when the money comes in.

A loan from a shareholder is potentially repayable but the agreement needs to address the currency in which, when and how the loan is to be serviced. The Organisation for Economic Co-operation and Development (OECD) guidance considers whether the advance has the characteristics of economically debt: the price (interest on the loan) is relevant but whether the borrower could service similar debt outside the relationship is also relevant. Depending on the domestic law, there are cases where purported debt might be found to be equity and restrictions on interest deductions even if the loan is considered to exist. An arm's-length rate alone does not necessarily determine interest deductibility: principal and interest also need to be treated separately for tax on the repayment.

Management Fees Demand Evidence of Services Rendered to Justify the Charge

Management fees bring a contrary consideration: the services rendered and those which attracted the charge. The UAE Federal Tax Authority's guidance on transfers pricing requires consideration of whether the services would provide an economic or commercial benefit that an independent business would purchase or perform itself. Costs incurred solely as a result of the parent owning the subsidiary do not support charging the subsidiary. Evidence of the performance, the beneficiaries and distribution of the cost matters as well as an annual invoice for management.

Royalties and Fees Need Scrutiny of the Licence and Basis of the Charge

In like vein, agreement on the basis on which a royalty charge is made needs to consider the entitlement and the consideration: ownership of a particular trade mark, intellectual property or other right belonging to a group company does not imply entitlement to all the revenue from its use except on agreement. The nature of functions performed, assets and risks at each entity are relevant facts. Agreements should reflect the commercial basis. Shifting a percentage of revenue offshore as royalty leaves the evaluation of the royalty vulnerable if the charge cannot be sustained. Similarly fees: the basis of the cost, what the paying entity has received in exchange, should be identified to support a claim that the sum represents compensation for a service.

Withholding Tax Can Affect the Return on Payment Outside the Jurisdiction

Depending upon the applicable domestic law, the category of payment (dividend, interest, royalty, service payment) can affect whether and to what extent the payer owes withholding tax. Classification is relevant in that different treatments might be available. Agreement to the category of the payment (and whether the sum is gross or if the payer should top-up to meet a specified net amount) should be clarified as part of the contract negotiations. That classification determines who bears the unexpected withholding tax.

A tax treaty may reduce the charge but entitlement depends on its wording and the recipient circumstances (residence, beneficial ownership of the sum received and any anti-abuse provisions). Residency, beneficial ownership and circumstances of the income must also be considered in any evaluation. An intermediary inserted to claim treaty benefits can potentially fail each test. The procedure is also relevant: Britain’s tax authority, HM Revenue & Customs (HMRC) guidance makes it clear that the relief from UK withholding tax is not automatic and distinguishes between the availability of relief at payment, and the relief for repayment of an over-withheld sum. The required certification and procedure should be established before assuming applicable relief.

For UAE investors, the destination of the currency is important: the UAE currently applies a 0% withholding tax rate to certain UAE sourced income paid to non-residents. This does not determine the tax which the income may incur upon leaving another jurisdiction. The receipt of a dividend, royalty or interest in the UAE bank account does not mean that the foreign withholding tax charge is eliminated. A UAE credit for foreign tax paid is limited to the UAE corporate tax due on the income. Unused credit cannot be carried forward, back or refunded. If the income is exempt in the UAE, foreign withholding charges remain a cost with no UAE credit.

Exchange Controls May Apply Upon the Exit of the Investment

Foreign exchange considerations can implicate legal aspects. India's Foreign Exchange Management Act differentiates between current account payments (interest on a loan and investment income) and capital account (transactions in connection with cross-border borrowing and lending by a corporate). An option available in relation to dividends cannot therefore be assumed to apply to an equity subscription or the return of the loan principal. Classification of the transaction as current account or capital account is not sufficient: not all current account payments are free, and not every capital account payment requires individual central bank clearance. The category of investment might matter on its exit. The Reserve Bank of India (RBI) rules relate the ordinary route for remittance of securities sale proceeds to repatriation status: the applicable pricing and taxation for the currency is therefore implicated. The records created on entrance to the investment can therefore affect its return years later. Agreements should provide for the currency of the payment and the sharing of costs and exposure to currency conversion: a favourable quotation cannot remedy a prohibition on making the underlying payment.

Banking Checks Cover More Than the Payer's Name

Bank scrutiny extends beyond account numbers. The Financial Action Task Force (FATF) standards require identification of the customer and of the beneficial owner and a review of the transactions in light of the customer's business and risk profile: local law dictates the duties imposed on banks. They may seek the loan agreement, dividend resolution or service contract supporting the payment. Establishing the source of funds is a question of what that particular lump of money represents. Source of wealth examinations address how the investor accumulated its assets. The extent of the checks is determined by the requirements (and the risk): banking enquiries into the owners of a company are not the same as a beneficial ownership of income for treaties which can concern the company receiving the payment. Completion of the one is not conclusive of the other.

Intermediary (correspondent) banks processing the transfer can ask further questions or sanctions. Any change to the beneficiary or an ownership trail unidentifiable or a discrepancy in the description of the invoice versus the payment can prompt further information to be provided. Processing of the payment does not validate that the payment is a lawful or properly taxed distribution. Each request exists within its own legal framework.

For an investor in funding choices internationally, the constructive exercise is to determine the return: what, how and with what documentation the payment will be made? Clarifying those questions makes the prospective return credible. Having allowed profits to accumulate abroad, restructuring the funding basis or reconstructing missing documentation may prove more complex than the initial payment.

The most expensive aspect of an overseas acquisition could be a liability that never appeared in the seller’s valuation. A customer contract could allow termination on change of ownership, a bank may hold security over core assets, and a licence may require regulatory consent before control changes. Each could undermine an otherwise profitable business or prevent the purchase from proceeding as planned.

Legal due diligence examines what a buyer will acquire and whether the business can continue operating after completion. The initial choice is between buying the company’s shares and selected business assets. In a share purchase the company generally retains its contractual obligations and past liabilities; an asset purchase offers more control over what is acquired, although employment, tax and other statutory rules may still attach obligations to the transfer.

Ownership Beyond The Registry

Corporate diligence begins in the entity being sold, its subsidiaries and the seller’s authority to act. Incorporation documents, constitutional rules, shareholder registers, board minutes and past share transfers should be reconciled with official filings. Shareholder agreements, options and pledges can reveal rights that restrict a sale or alter the stake available. Earlier share issues need checking for proper authorisation, along with unpaid capital commitments and any shareholder waivers required before completion.

Beneficial ownership requires a separate inquiry into the individuals who ultimately own or control the business. Nominees, trusts and intermediate holding companies can strip the registered shareholder from the person exercising control. The review should reconcile ownership declarations with voting arrangements and independent records, then assess applicable reporting and sanctions requirements. Definitions and disclosure thresholds vary by jurisdiction; a familiar percentage from the buyer’s home market is an unsafe substitute for the local test. Where US sanctions apply, an entity is treated as blocked if blocked persons together own at least 50%, directly or indirectly, even when it is not listed. Control alone does not trigger that particular rule.

Licences And The Right To Acquire

The licence schedule should match the activities actually generating revenue, including operations conducted through subsidiaries. Buyers need to establish which entity holds each permission, its expiry and whether the deal triggers notification, consent or a fresh application. Foreign ownership limits and sector-specific suitability requirements also need checking before the proposed ownership structure is settled. Licence conditions, inspection findings and enforcement correspondence can reveal restrictions that are not apparent from an expiry date or a record of renewals.

Competition clearance and investment screening are separate issues. Transactions requiring notification under the EU Merger Regulation generally cannot be implemented before clearance. Under Britain’s National Security and Investment regime, an acquisition subject to mandatory notification is void if completed without approval. Legal teams must identify filing requirements early and build the necessary clearances into the completion timetable, including time to answer regulators’ questions.

Contracts And Debt Can Alter The Price

Revenue forecasts deserve to be read alongside the contracts supporting them. Customer, supplier, distribution and lease agreements may contain termination rights, exclusivity obligations or consent requirements. A share sale can trigger a change-of-control clause although the contracting company remains the same; an asset sale may require consent to assign rights or replace the seller as a party to the contract. Amendments and side letters also matter: an expiry date or a rebate agreed outside the main document can undermine the revenue forecast even where transfer is permitted. If an important customer can leave after the acquisition, the buyer has a valuation problem as well as a drafting issue.

The loan balance is only the starting point for debt diligence. Finance documents should reveal security over assets, shareholder loans, guarantees for other group companies and restrictions on further borrowing. Property and security searches must be matched to the relevant jurisdiction and asset. Where financing is to be repaid, completion arrangements should provide for repayment and effective releases. A seller’s assurance that an asset is paid for is insufficient if a lender retains enforceable security over it.

Employees And Intellectual Property

Employment costs can also change the economics. Accrued leave, bonuses, pensions and severance need examining alongside collective arrangements, contractor status and work permissions, with local advice on consultation duties. In Britain, qualifying transfers under the Transfer of Undertakings (Protection of Employment) rules can preserve employment terms and carry responsibility for earlier breaches of employment rights to the new employer. An asset purchase should not be priced on the assumption that the buyer can simply choose which staff obligations to retain.

Intellectual property presents a different ownership problem. A target may use software, branding or technical designs without owning the rights the buyer expects. In the UK, commissioned copyright works generally belong initially to their creator unless otherwise agreed in writing. Buyers should examine assignments from founders and contractors, licence restrictions, registrations and territorial coverage. The commercial question is whether the acquired rights permit the intended use and expansion, and what it would cost to secure any missing rights.

Litigation And The Tax Position

Litigation searches need to be supplemented by a schedule of pending and threatened claims, arbitration, settlements and regulatory investigations. Outstanding judgments and continuing obligations under earlier settlements also belong on that schedule. Public records cannot reveal every dispute: private arbitration materials may remain confidential under the applicable rules, while a threatened claim may not yet have been filed. The assessment should consider the remedy sought as well as potential damages. An injunction affecting a core product can be more disruptive than a larger claim payable in money.

Tax diligence should reconcile returns, accounts and correspondence with the authorities across the jurisdictions where the business operates. Corporate income tax is only part of the exposure; payroll deductions, VAT or sales taxes, customs and withholding taxes may need attention. Open audits, related-party transactions and the conditions attached to tax reliefs warrant particular scrutiny. The review period should follow local assessment rules and identified risks, rather than an arbitrary request for a fixed number of years.

An asset transaction is no universal shield against historic tax. California’s sales and use tax rules, for example, can impose successor liability on a purchaser of a business or stock of goods, making tax clearance and purchase-price withholding relevant before funds are released. Tax treatment of the acquisition itself also matters. Transfer taxes, available reliefs and financing costs should be modelled before the buyer commits to a structure.

Putting The Findings Into The Agreement

The diligence report should lead to specific decisions in the purchase agreement. Missing approvals may become conditions to completion; quantified liabilities may justify a price reduction or funds held in escrow. A known tax dispute may require a targeted indemnity covering the specified loss, with rules on who controls the defence and settles the claim. An indemnity allocates loss between the parties; it does not by itself extinguish the underlying liability to a tax authority. General warranties about the business still matter, but their protection depends on the governing law, wording, disclosures, liability caps and deadlines negotiated.

Recovery deserves equal attention. A promise from a seller with no remaining assets offers little practical protection, particularly if enforcement must take place abroad. Buyers should examine the governing law, dispute forum and location of assets before relying on an indemnity, and refresh material searches before closing. Where an essential permit or revenue contract will not survive the transaction, negotiating a lower price may leave the buyer paying less for a business it still cannot run.

Dr. Sunil Ambalavelil is the Global Executive Chairman of Kaden Boriss, an international law firm specialising in franchise and business agreements. A seasoned legal adviser, he has advised and supported the international growth of numerous global brands, helping them navigate the legal complexities of cross-border expansion.

The most consequential decision in a cross-border joint venture may be taken before its first contract is signed: where the business should be incorporated. This decision should be tested against an uncomfortable scenario. A partner wants new investment, but the other will not invest and will not sell. Where should the business be incorporated to ensure that the company can continue to operate, despite the disagreement between its owners?

Where the Business Can Legally Operate

If a venture is focused on one country, it makes sense to start there. Creating a separate holding company in another jurisdiction should be justified by a commercial need, such as accommodating several operating subsidiaries or finding a legal regime that both parents can accept. Restrictions on ownership, screening of investments, currency controls, and availability of banking facilities should be considered in the preliminary comparison, alongside court remedies and implementation costs. The neutrality that a jurisdiction offers to its shareholders is a plus; complexity is not.

The UAE illustrates the difference between ownership and the right to operate. Full foreign ownership is permitted for many businesses on the mainland, but activities of strategic interest are subject to special conditions. A foreign or free-zone holding company should not be selected as a substitute for understanding the licences and approvals needed where the venture will operate.

Tax residence is another separate issue. Singapore’s tax authority assesses where a company’s business is controlled and managed, rather than where it is incorporated. Even meeting the board there may not be enough if decisions are taken elsewhere. A jurisdictional comparison should therefore cover the whole investment cycle, including the implications of withholding taxes, distributions and disposal proceeds, as well as the headline corporate tax rate.

The Agreement Cannot Replace Company Law

There is nothing wrong with partners trying to agree their own commercial relationship via a shareholders agreement. They should understand, however, that a contract cannot replace the company’s constitution. Section 33 of the UK Companies Act 2006 makes it clear that this binds the company and its members. Selecting a different governing law for the shareholders’ agreement does not override mandatory rules, such as voting rights, transfer restrictions and rights attached to shares. These should be consistent across both documents, with incoming shareholders required to subscribe to the agreement where appropriate. A contractual undertaking to vote in a particular way is not necessarily the same as a restriction built into the articles of association.

Control Extends Beyond the Equity Split

Election of directors alone does not guarantee control. Reserved matters can include needing the consent of specified shareholders to borrow money, to issue new shares, to dispose of significant assets or to change the nature of the business. These provisions are designed to protect an investor against decisions that may frustrate its bargain. The scope and financial limits of these consents should be carefully analysed: a requirement for unanimity on ordinary expenditure can become a major constraint. Quorum requirements similarly warrant scrutiny: a shareholder’s right to appoint a director can become a blocking right if meetings cannot be held without that nominee.

Directors’ duties impose yet another limitation. Section 172 of the UK Companies Act generally requires directors to act in good faith to promote the success of the company for its members as a whole, subject to qualifications including the need to have regard to the interests of the company’s creditors in appropriate circumstances. A parent company cannot assume that its nominee is free to take instructions regardless of the interests of the JV. If the parents remain competitors, information rights may need to be limited too: the UK competition regulator has warned that the sharing of sensitive business information may exceed the scope of the joint venture.

When Funding Becomes a Deadlock

The initial capital contribution is only the beginning of the funding negotiation. The agreement should distinguish between finance that has already been committed and further investment that will need new consent, and set out the implications of overspending, guarantees and shareholder loans. Refusal to make an additional contribution can be no different from a breach of an existing obligation. Any dilution mechanism needs to have a specific trigger and valuation methodology, rather than assuming that the shareholder providing emergency funding will be able to set the price.

Debt adds a further jurisdictional dimension. Deductibility of interest, withholding requirements and treatment of related-party lending should be analysed alongside the commercial terms. Singapore, for example, requires cross-border related-party loans to comply with the arm’s-length principle. The financing package should be evaluated as a whole: a loan that leaves the ownership percentages unchanged may redistribute economic rewards or create differing rights of repayment.

A deadlock provision should specify which unresolved decisions give rise to escalation, allow senior executives a defined opportunity to reach a deal, and keep essential operations running in the meantime. Technical disputes may be suitable for expert determination, but disagreements over the business strategy require a different solution. A buy-sell mechanism can terminate the relationship by requiring one party to purchase the other’s shares, but equal contractual rights do not create equal bargaining power. A partner unable to fund an acquisition may have no real choice but to walk away.

An Exit Needs More than a Valuation Formula

Transfer provisions determine whether either of the shareholders is entitled to introduce a third party. Rights of first refusal can preserve the existing partnership, while tag-along rights allow an investor to participate in a qualifying sale and drag-along rights can compel others to join in. Their triggering events need to be carefully drafted. Indirect change of control at parent level should also be considered: the commercial partner can change without any transfer of the JV’s shares.

Singapore’s Court of Appeal illustrated the importance of an exit route in its 2018 Perennial (Capitol) decision. It refused to wind up the companies in deadlock where the articles contained an available fair-value exit mechanism. The court recognised that an unfair mechanism might call for a different approach, but would not use winding up as a means of releasing shareholders from their bargain. The jurisdiction’s approach to judicial remedies can therefore be as important as the words used in the exit clause.

Completion should also cover release from guarantees, outstanding shareholder loans and continuing access to intellectual property. A sale price does not resolve whether the company can continue to use a parent’s software, brand or production process. Those arrangements should be coordinated with the sale of shares rather than left to be negotiated after the right of exit has been triggered.

The Dispute May Need More Than One Forum

The incorporation jurisdiction, contractual governing law and seat of any arbitration are separate choices. The arbitration clause should identify the seat, rules, appointment process and language, and coordinate related financing and licensing agreements. The New York Convention provides a framework for enforcing foreign arbitral awards, but enforcement is subject to recognised grounds for refusal. The location of assets should therefore be discussed before a dispute arises, rather than waiting for an arbitral award to be taken.

Arbitration also has limitations that affect the choice of incorporation. In the Tomolugen Holdings v Silica Investors case, Singapore’s Court of Appeal distinguished between an arbitrable dispute between shareholders and remedies that fall outside an arbitrator’s powers, such as winding up a company. A dispute may therefore call for arbitration of the allegations and subsequent court proceedings for particular relief. Putting all disagreements into a wide-ranging arbitration clause does not remove the role of the corporate courts.

The choice of jurisdiction should be tested by these considerations, rather than preceding them. For a single-market venture, a local company may suffice; a multi-country business may require a separate holding jurisdiction. The better structure is the one in which control, funding and exit provisions remain functional even when cooperation ceases, without adding unnecessary expense to the life of the business while it lasts.

International investments often comprise cross-border elements. This is particularly the case where the assets are diversified, numerous jurisdictions are involved and the contracts are negotiated in a foreign country. In commercial relationships, disputes are likely to arise that may be resolved relatively simply, but pose significant challenges when it comes to determining which venue has jurisdiction.

This is especially the case in connection with disputes over foreign shareholder agreements, infrastructure investments, joint ventures, financing arrangements and takeovers. A contractual dispute may be submitted to a national court, an international arbitration tribunal or an arbitration under an investment treaty. The consequences for the dispute management process, interim protection, costs and enforceability will be significantly different.

Arbitration is often the preferred method due to its neutrality and international enforceability, but litigation can offer more extensive powers, including appeals and greater control over third parties. At the same time, neither of these tools is universally advantageous. The choice between them depends on the nature of the investment, the contractual formulation and, above all, on the location of the assets of the obligor.

Governing Law and Jurisdiction Are Not the Same

One of the most common mistakes when drafting international investment contracts is confusing governing law with jurisdiction.

Although the terms often overlap, these concepts are different in almost every legal system and the principles that apply to them are also different. Governing law determines the law that will govern the obligations of the parties. The jurisdiction clause determines which court will have jurisdiction over disputes, while an arbitration agreement determines which arbitration rules will apply to the dispute.

An agreement governed by English law and subject to arbitration in Singapore will involve applying English substantive law to interpret the contractual obligations, while arbitration proceedings in Singapore will be governed by local arbitration legislation.

The law governing the contract does not always apply to all issues. The arbitration agreement’s validity, regulatory requirements, company law or property law may involve different rules. The tribunals or courts also have to consider whether there are mandatory laws that must be applied or whether there are applicable conflict-of-laws rules.

For investors, this nuance is especially important because in international disputes, problems often arise precisely due to the incorrect drafting of the contract. Conflicts can arise between different jurisdiction clauses, as well as different governing law and arbitration rules. The resolution of jurisdiction disputes consumes significant resources without directly shedding light on the essence of the conflict.

Why Seat of Arbitration Matters

The seat of arbitration is not a place where hearings are held, but rather the legal jurisdiction where the arbitration proceedings are considered to take place. Consequently, it is determined by the arbitration law under which the arbitration tribunal has jurisdiction.

An arbitration seated in London can have its hearings in Dubai or Singapore, without affecting the fact that it is still a London arbitration. This means that it is the law of the seat that governs the arbitration powers of the tribunal and the courts that may have jurisdiction over challenges to awards or other measures.

When choosing the seat of arbitration, investors should consider the general reliability of the judiciary, arbitration legislation, judicial oversight of arbitration, and the grounds for challenging awards. The arbitration law of individual jurisdictions such as Singapore, England and Wales, France and Hong Kong is well developed. However, this does not mean that the approaches of these jurisdictions are identical in relation to arbitration.

The arbitration legislation of many jurisdictions is based on the UNCITRAL Model Law on International Commercial Arbitration. This instrument also contains recommendations on the extent to which courts should intervene in arbitration proceedings, and what measures courts should take at the request of the parties, including preliminary injunctions. The choice of the seat of arbitration and the associated arbitration law, which determines the procedural aspects of the dispute settlement, is no less significant.

The Enforcement Question Can Often Decide the Matter

Even if the winning party manages to obtain a favorable decision or award, this does not automatically entitle them to recover the due amount. One of the advantages of arbitration is the ease of enforcement of awards under the New York Convention of 1958, which has been ratified by almost all jurisdictions. This instrument provides for the recognition and enforcement of arbitration awards in contracting states, which removes many of the obstacles to enforcement.

However, it is necessary to consider the exceptions, including the possibility for the local courts to refuse recognition or enforcement. This may be the case, if, for example, the arbitration agreement was concluded on unequal terms, or if the award was issued illegally or exceeded the jurisdiction of the tribunal. In any case, the New York Convention does not protect against local enforcement proceedings and does not ensure the possibility of immediate execution of the award.

Meanwhile, the situation with the enforcement of court decisions is more complicated. The recognition and enforcement of foreign judgments depends on the legislation of individual countries, bilateral agreements or the Hague Convention of 2019 on the Choice of Court Agreements, which has so far been ratified by a few states. This instrument provides for the recognition and direct enforcement of judgments in contracting states, but the procedure for doing so depends on the specific circumstances of each case.

Consequently, an investor who has received a favorable decision or award may face difficulties when it comes to the actual enforcement of this decision and the seizure of the assets.

The asset location factor is especially relevant in this regard. If the respondent has significant assets in a particular jurisdiction, enforcement proceedings should be initiated there, even if this is not the most convenient option. Even an enforceable award may be subject to various objections, including the insufficiency of assets for offsetting the due amount, the priority of other creditors, or the impossibility of enforcing this measure under local law.

Urgent Measures Are Sometimes More Significant than Waiting for the Final Decision

There are disputes in which time is of the essence. This is especially the case when it comes to investments protected by international treaties or arbitration agreements. A shareholder may believe that company assets are at risk of being transferred to another party, a contracting party may terminate the agreement to dereference pledged assets, or confidential information may be at risk of being misappropriated.

National courts are often in a better position to respond to such situations, as they can issue and enforce decisions that restrain the enforcement of disputed assets. However, this factor also applies to arbitration. The seat of the arbitration determines the law according to which the arbitral tribunal can issue all measures, including preliminary, interim and final measures.

This may be limited by the rules of the arbitration institution, but the possibility of requesting preliminary measures is usually provided for, as is the case with the rules of the ICC, according to which an emergency arbitration award may also be issued. Under the new ICC Arbitration Rules 2026 that came into force in June 2026, an emergency arbitrator may be appointed ex officio.

However, the availability of this option and the extent to which it is available depends on the specifics of the dispute, the arbitration rules and the seat of arbitration. Emergency measures are subject to the law of the seat, which may require additional steps to enforce them.

If the dispute concerns assets that must be subject to immediate seizure or other third-party measures, the situation may arise where it is necessary to resort to the intervention of the local judiciary, despite the existence of an arbitration agreement. Investors in disputes of this kind should carefully consider whether the arbitration clause includes language that would prevent them from applying to the local court for urgent measures. A properly drafted arbitration clause should minimize the risk that the request for judicial protection will be interpreted as a violation of the arbitration agreement.

Litigation Has Its Own Advantages over Arbitration

Although arbitration is often the preferred choice when it comes to international investment disputes, litigation has its advantages. Above all, courts have more tools at their disposal to compel witnesses to appear and produce evidence. This is important in disputes in which there are allegations of fraud, concealment of evidence or other violations committed by third parties who have not concluded an arbitration agreement. Litigation also provides for detailed procedural controls, which are often considered a disadvantage in arbitration, but which turn out to be decisive in complex disputes.

Finally, this kind of dispute resolution is characterized by transparency, although this varies depending on the jurisdiction. Arbitration proceedings are held behind closed doors by default, but this may not be the case if the parties so agree. On the contrary, litigation is conducted in public, which makes it difficult to protect commercial secrets. This factor, among others, may be decisive in choosing between arbitration and litigation for an investor who cares about the confidentiality of the dispute details.

Neither of the two methods is universally superior in terms of costs and speed. Litigation is generally considered to be more time-consuming, but arbitration costs can be prohibitively high for small disputes. At the same time, the complexity of the claims, the need for additional evidence and enforcement proceedings also affect the final cost. Commercial litigation, especially when it comes to proving allegations of fraud, can be associated with significant expenses, including legal fees and a long trial.

Treaty Claims Require a Separate Analysis

Not all investment-related disputes are purely contractual in nature. If the measures taken by the state affect the investor’s assets, they may have to turn to the bilateral investment treaties that have been concluded between the investor’s home country and the host country. These instruments set out the terms for protecting investments and require states to submit disputes to international arbitration. The content of such treaties varies from jurisdiction to jurisdiction, but they generally cover compensation for expropriation, protection against discrimination and other violations. However, the mere existence of the treaty does not automatically entitle the investor to compensation, but rather requires a separate analysis of the details of the dispute.

Investor-state disputes are often governed by the ICSID Convention, but other arbitration rules are also available. Each of these instruments, in turn, has detailed provisions on the recognition and enforcement of awards. An ICSID award is binding on the contracting states, which must enforce it as if it were a domestic judgment. However, this does not extend to all measures, for example, the seizure of assets in the event of the respondent’s default. In addition, each state has the right to adopt laws on ICSID arbitration and its enforcement, including those relating to state immunity from execution.

ICSID arbitration and other forms of dispute resolution under investment treaties have their own procedural peculiarities. At the same time, there are also exceptions, including variations in the requirements for eligibility to bring a claim, definitions of the term investment, and the ability to restructure investments. When choosing between arbitration and litigation, an investor who finds himself in a dispute under an investment treaty should take into account all the subtleties of the wording of the applicable instruments. The same applies to the analysis of jurisdiction, which is often complicated by overlapping claims and potential double recovery.

The Nuances of the Contract Are Often Decisive

Dispute resolution clauses are often the last detail in an investment contract, which means that they are given less attention. However, the choice between arbitration and litigation and all the nuances that go with it can affect the entire transaction.

A properly drawn up clause should contain information on the governing law, the seats of arbitration, the rules of arbitration institutions, language, the number of arbitrators, and the list of disputes subject to arbitration. The allocation of jurisdiction clauses is particularly relevant to disputes concerning complex investment structures that may include many contracts. Their wording should be carefully considered so that, for example, a dispute arising under one agreement does not end up in a completely different dispute resolution procedure than a dispute under a related agreement.

Parties should also consider whether consolidation of disputes is possible, whether new parties can be added to the dispute, and whether the dispute resolution method allows for recovery against guarantors or related entities. Finally, before determining which procedure to use, it is necessary to analyze the practical aspects of enforcing the decision, the availability of urgent measures, the complexity of evidence collection, and the cost of lengthy proceedings.

A Commercial Decision With Long-Term Legal Consequences

The choice between arbitration and litigation is ultimately a commercial decision that weighs the risks to the investment against the possibility of a swift and safe recovery of the due amount. Arbitration offers neutrality and expertise, as well as relatively simple enforcement of awards through the New York Convention. Litigation, on the other hand, offers more options for enforcing assets, especially when it comes to third-party claims. International investors considering one of these two options should understand the advantages of each procedure, as well as the alternatives that may be available to them.

They should also consider that, in some cases, the two procedures can be combined. Courts can be used to supplement arbitration, for example, by obtaining urgent interim measures, while arbitration agreements under investment treaties can be used to protect against state interference.

In making this choice, investors should bear in mind that the enforceability of the decision in the relevant jurisdictions is often more important than the ability to win the dispute. The right to recover the investment with a minimum of costs and time is essential to any commercial decision.