Setting up a holding company in Dubai is often seen as something reserved for multinational giants, ultra-wealthy families, or complex corporate groups. As a result, many founders, business owners, and investors delay or completely avoid exploring holding structures, sometimes for years.

The truth?
Most of what people believe about holding companies in the UAE is either outdated, misunderstood, or taken out of context.

With the UAE’s evolving corporate tax framework, stronger compliance standards, and increasingly sophisticated investors, holding companies are no longer optional “nice-to-have” structures. They are strategic tools when used correctly.

This article breaks down the most common misconceptions about holding companies in Dubai, explains the reality behind each one, and helps you understand whether setting up a holding company in Dubai Free Zone or on the mainland actually makes sense for your situation.

1. Holding Companies Are Only for Billion-Dollar Corporations

This is one of the most damaging myths, and the reason many founders miss out on structural advantages early.

Many entrepreneurs assume that unless they run a massive group with dozens of subsidiaries, a holding company is unnecessary or premature.

The reality

A holding company is not about size; it’s about structure.

Even a founder with:

• Two operating businesses
• One mature “cash-generating” company and one early-stage venture
• A mix of business and real estate assets

…can benefit from a holding company in the UAE.

A holding structure allows profits from a stable operating company to be retained at the group level and redeployed into new ventures without routing everything through a personal account. This reduces friction, improves capital efficiency, and creates a cleaner audit trail.

In practice, holding companies are often most powerful before a business becomes large, not after.

2. You Can Use a Holding Company for Active Trading

This misconception regularly causes licensing issues, bank rejections, and regulatory headaches.

Some founders believe that once they set up a holding company in Dubai, they can invoice clients, sell services, or trade products directly from it.

The reality

A pure holding company license does not allow active trading.

Its permitted scope is limited to:

• Holding shares in subsidiaries
• Owning intellectual property (IP)
• Holding real estate or long-term investments

If your group needs to sell products or services, those activities must be conducted through operating companies (OpCos) underneath the holding company.

This separation is intentional. It protects the parent company from operational risks while allowing operating entities to scale independently.

Trying to “force” trading activity into a holding company is one of the fastest ways to attract regulatory scrutiny.

3. Holding Companies Are Just Shell Companies to Avoid Tax

This belief comes from outdated offshore-era thinking and is no longer aligned with UAE regulations.

The reality

The UAE has moved decisively away from shell structures.

Under Economic Substance Regulations (ESR) and the post-2023 Corporate Tax framework, a holding company in the UAE must demonstrate commercial rationale and substance, especially if it benefits from tax exemptions.

Substance may include:

• A registered office or physical presence
• Board or strategic decision-making taking place in the UAE
• Proper documentation of ownership, governance, and intercompany transactions

Holding companies today are expected to govern, not merely exist.

This shift has actually strengthened the credibility of UAE holding structures in the eyes of banks, regulators, and international partners.

4. The 9% Corporate Tax Applies to All Holding Company Income

Corporate tax understandably created concern among business owners, particularly those relying on dividends.

The reality

Most dividends and capital gains earned by a holding company from its subsidiaries are exempt, provided they meet the Participation Exemption conditions.

Typically, this includes:

• Holding at least 5% ownership
• Maintaining the investment for a minimum period (often 12 months)
• The subsidiary is subject to an acceptable tax regime

When structured properly, a holding company in Dubai can receive dividend income without triggering the 9% corporate tax, making it a powerful tool for long-term group planning.

This is one of the most misunderstood and most valuable aspects of UAE holding structures.

5. I Still Need a Local Emirati Partner Owning 51%

Despite reforms introduced years ago, this myth refuses to disappear.

The reality

Since the UAE’s ownership reforms, foreigners can own 100% of their holding companies in:

• Dubai Mainland
• Most Free Zones, including DIFC and DMCC

There is no requirement for a local Emirati shareholder for the vast majority of holding company activities.

If you still see content claiming otherwise, it is almost certainly outdated or incorrect.

6. Holding Companies and Offshore Companies Are the Same

These terms are often used interchangeably and incorrectly.

The reality

They serve very different purposes.

A holding company in a Dubai Free Zone:

• Can own UAE-based subsidiaries
• Can own property (subject to location rules)
• Can sponsor UAE residency visas
• Is subject to UAE compliance frameworks

An offshore (international business) company:

• Is typically restricted from owning mainland UAE property
• Does not provide residency visas
• Is often used only for international asset holding

Choosing between the two without understanding these differences can severely limit future flexibility.

7. You Don’t Need a Physical Office

This misconception causes real problems during bank account opening and compliance reviews.

The reality

While some free zones allow flexi-desk arrangements, a verifiable physical presence is increasingly important.

Banks, auditors, and regulators now expect:

• A traceable address
• Evidence of management or governance activity
• Clear operational separation between entities

A holding company that exists only “on paper” raises AML and ESR red flags, even if it is technically licensed.

8. It’s Impossible to Open a Bank Account for a Holding Company”

This is partially true, and mostly misunderstood.

The reality

Opening a bank account for a holding company is more complex, but far from impossible.

Banks hesitate because holding companies:

• Do not have trading income
• Often rely on dividend flows
• Require clarity on the source of wealth

However, accounts are routinely approved when supported by:

• A clear group structure
• Documented source of funds
• Transparent subsidiary operations
• A well-defined purpose for the holding entity

Preparation matters more than persuasion.

9. A Holding Company Protects You from All Legal Liability

This is where overconfidence becomes dangerous.

The reality

A holding company provides liability segregation, not immunity.

If Subsidiary A faces legal or financial trouble, assets held in Subsidiary B are generally protected. However, courts can “pierce the corporate veil” if they find:

• Commingling of funds
• Lack of proper documentation
• Abuse of the structure

Governance discipline is what makes a holding structure effective, not the license alone

10. Setting Up a Holding Company Is Too Expensive for Startups

Upfront costs often scare founders away.

The reality

While a holding structure involves initial setup and ongoing compliance, it often reduces long-term complexity and cost by:

• Consolidating ownership
• Simplifying exits and restructuring
• Allowing tax-efficient movement of capital
• Reducing duplication across entities

For founders planning growth, acquisitions, or diversification, a holding company can be more economical over time than running disconnected businesses.

11. You Can’t Get UAE Residency Through a Holding Company

This misconception stops many investors from exploring holding structures.

The reality

A holding company in the UAE, especially in a Free Zone, is one of the most stable bases for UAE residency visas.

Shareholders can obtain residency, sponsor family members, and maintain long-term presence in the UAE without being tied to daily operational roles.

For investors and founders transitioning from execution to oversight, this is a significant advantage.

Final Thoughts: Why These Misconceptions Persist

Most misconceptions about holding companies in the UAE come from:

• Outdated blog content
• Offshore-era assumptions
• One-size-fits-all advice

In reality, holding companies in Dubai are governance tools, not loopholes. When designed correctly, they help founders:

• Protect assets
• Scale responsibly
• Allocate capital efficiently
• Build long-term value

If you are considering setting up a holding company in Dubai, the question is no longer “Am I big enough?” It is “Am I structuring early enough?”