DIFC fills the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.
Why setup an investment fund in the DIFC?
The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.
The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of Public, Exempt and Qualified Investor Funds. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.
With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.
Specific Advantages:
Here are some specific advantages of establishing in the Dubai International Financial Centre:
LEGAL AND REGULATORY FRAMEWORK:
- Legal framework supports cross-border activities.
- 100% foreign ownership permitted.
- No restriction on foreign talent or employees.
- No restrictions on capital repatriation.
TAX BENEFITS:
- Zero tax for 50 years on profits, capital or assets from 2004.
- Zero tax on employee income.
COUNTERPARTY CONFIDENCE:
- Highly regarded, independent regulator.
- Independent, English-speaking, common law judicial system.
- Distinct from the UAE legal system.
- Risk-based regulatory approach.
DIVERSE ECOSYSTEM:
- Central to regional deal making
- High concentration of international firms, investment funds, wealth management firms, banks, and financial institutions.
- World-class regional and international law and auditing firms, and other professional services.
- The largest fund domicile in the region.
GEOGRAPHIC EPICENTRE:
- Management offices, holding companies and family offices are located closer to the assets they own or manage.
- The Middle East, Africa and South Asia (MEASA) is increasingly the centre of gravity for the global economy.
- Dubai plays a central role in the growing South-South trade, principally between Asia and Africa.
- Well-positioned to harness the potential of emerging markets.
Qualified Investor Funds in the DIFC
Qualified Investor Funds are the least regulated funds in the DIFC, due to the fact that they are open to sophisticated investors only. A DIFC Qualified Investor Fund has a minimum subscription of US$ 500,000 and is open to Professional Clients only.
Who is a Professional Client?
The DIFC has a detailed definition of Professional Client, which includes service-based, assessed and deemed professional clients. While specifics are best checked at the DFSA website (or you can contact us for more details), in general, assessed professional clients are subject to the net asset test of US$ 1 million.
Other features:
All units would have to be offered to persons by way of private placement only.
The DFSA has a fast-track process for fund managers who wish to manage qualified investor funds from the DIFC. The base capital requirements are also lower – US$ 70,000 as opposed to US$ 500,000 in case of fund managers of public funds.
Since Qualified Investor Funds are offered to sophisticated investors only, the DFSA has relaxed many requirements that otherwise apply to public and exempt funds. QIFs are permitted to add oversight arrangements, but this is not mandatory. Also, for most closed-ended funds, it is not mandatory to appoint a fund administrator. Read this article to know more about the other service providers that may be required for DFSA Funds.
DIFC QIFs enjoy a fast-track notification process where the DFSA aims to complete the process within a period of 2 days. Documents required to be submitted include the Private Placement Memorandum and the Fund Constitution, in case of a fund structured as an investment company. Learn more about the documents required for DFSA funds by clicking here.
Costs:
The DIFC offers a subsidised fee structure for fund managers of qualified investor funds. This includes a reduced fee of US$ 2,000 per annum for the commercial license (was US$ 12,000 earlier), and complete waiver of the application fee of US$ 8,000, resulting in a cumulative saving of US$ 28,000 over a two-year period. Costs at the DFSA are also lower – US$ 5,000 application fee and US$ 5,000 annual license fee (as opposed to US$ 10,000 in case of DIFC Exempt Funds).
Setting up a fund structure in the DIFC:
Setting up a fund in the DIFC requires either a) setting up a Domestic Fund Manager or b) licensing an existing fund manager in a recognized jurisdiction, to act as the External Fund Manager of the DIFC fund. Read this article to know more about the licensing process and associated costs.
Click here to read more about managing an EU Fund with DIFC Fund Mangers
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