Investment Fund Set Up in DIFC

Key Takeaways

• DIFC is a leading financial hub with tax benefits, regulatory strengths, and a diverse investor base.
• The streamlined setup process allows fund managers to launch quickly while adhering to regulatory requirements.
• DIFC’s robust legal framework enhances investor confidence, contributing to fund success.
• Our expert Fund Setup Service is designed to help you navigate the complexities and launch your fund efficiently.

Setup Your Own DIFC Fund

Introduction to the Dubai International Financial Centre

The Dubai International Financial Centre (DIFC) stands as a premier financial hub in the Middle East, Africa, and South Asia (MEASA) region, providing a secure and efficient platform for global business and investment activity. Regulated by the Dubai Financial Services Authority (DFSA), the DIFC offers a high level of confidence to both individual and professional investors, thanks to its transparent and robust regulatory environment.

With its foundation in common law, the DIFC delivers legal certainty and a business-friendly environment that attracts a diverse range of financial institutions, including leading banks, investment firms, and insurance companies. The centre is renowned for its state-of-the-art infrastructure and tax efficiencies, making it a preferred base for financial services and investment funds targeting the MENASA region.

DIFC is home to a vibrant ecosystem of investment funds, including private equity funds, venture capital funds, and hedge funds. These funds benefit from access to a deep pool of professional investors and a supportive regulatory framework designed to foster innovation and growth. As a gateway to emerging markets, the DIFC enables fund managers and private equity professionals to tap into new opportunities, while maintaining the highest standards of governance and investor protection. This unique combination of regulatory strength, infrastructure, and market access cements DIFC’s reputation as a leading financial hub for investment funds and financial institutions worldwide.

Introduction to DIFC Investment Funds

The Dubai International Financial Centre (DIFC) is a pivotal financial hub facilitating trade and investment across the MEASA region, comprising 77 countries with a population of approximately 3.7 billion. It offers legal certainty through an independent regulatory framework and an English Common Law system. DIFC supports various investment fund types, including Public Funds, Exempt Funds, Qualified Investor Funds, Islamic Funds, Hedge Funds, Private Equity Funds, Venture Capital Funds, and Property Funds.

Funds in the DIFC benefit from a robust regulatory framework and access to a diverse investor base, making it an attractive jurisdiction for establishing and managing investment funds.

DIFC aims to double its contribution to the regional GDP by 2030, offering fund managers ownership control, tax neutrality, and excellent connectivity. Fund managers conducting Islamic financial business must be authorized by the Dubai Financial Services Authority (DFSA).

Our Fund Setup Service provides tailored guidance to help you capitalize on DIFC’s dynamic environment.

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Why Choose DIFC for Your Investment Fund?

DIFC stands out as a leading financial hub due to several key factors:

• Robust Regulatory Framework: The DFSA provides independent regulation with high standards ensuring investor protection and market integrity.
• Tax Efficiency: DIFC guarantees zero corporate and income tax on profits, capital gains, and income for investment funds for 50 years, creating a tax-neutral environment.
• Strategic Location: Positioned at the crossroads of Europe, Asia, and Africa, DIFC offers access to emerging markets across the Middle East, Africa, and South Asia.
• Diverse Investor Base: The DIFC ecosystem includes sovereign wealth funds, institutional investors, family offices, and high-net-worth individuals, providing ample capital opportunities.
• Flexible Fund Structures: DIFC supports a wide range of fund types and structures, enabling customization to investor needs and regulatory compliance.
• Legal Certainty: Operates under English Common Law with an independent judicial system, providing confidence to international investors.

Our team specializes in leveraging these advantages to set up your fund efficiently and compliantly.

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Claims by DIFC

DIFC enables funds to market throughout the UAE with a simple passport notification, facilitating access to markets such as the Abu Dhabi Global Market. This streamlined approach reduces regulatory hurdles and accelerates market reach. Local placement rules still apply in some Gulf countries, but institutional investors benefit from exceptions through reverse enquiry.

Transparency, anti-money laundering (AML), and combating the financing of terrorism (CFT) practices are rigorously enforced to enhance investor confidence and create a secure investment environment.

Our Fund Setup Service ensures your fund complies with these standards from day one, safeguarding your reputation and investor trust.

Role of Fund Managers in DIFC

Fund managers are central to the success of investment funds in DIFC. Under the DFSA’s regulatory framework, fund managers are authorized to manage funds in the DIFC, ensuring they meet strict operational and compliance standards. Their responsibilities include:

• Making informed investment decisions aligned with the fund’s objectives.
• Managing portfolio risk effectively.
• Ensuring compliance with regulatory and governance standards.

The DFSA regulates fund managers, requiring authorization and adherence to the Collective Investment Law and DFSA Rulebook. Fund managers can be:

• Domestic Fund Managers: Licensed and based in DIFC.
• External Fund Managers: Licensed in recognized jurisdictions but managing funds domiciled in DIFC.

Both types must meet DFSA standards to maintain governance, transparency, and investor protection.

Our expert consultants guide fund managers through licensing and compliance, ensuring smooth operations.

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Initial Setup Process: Eight-Step Roadmap

Setting up an investment fund in DIFC involves a detailed process designed to ensure compliance and operational efficiency:

1. Application Submission: Prepare and submit a detailed application to the DFSA.
2. Interactive Review: Engage in a review phase with the DFSA, addressing queries.
3. Interviews: DFSA conducts interviews with fund managers to assess compliance and fund objectives.
4. Fund Structure Definition: Choose appropriate fund structures (e.g., limited partnership, investment company).
5. Capital Requirements: Domestic fund managers must maintain a minimum base capital of $70,000, adjusted for operational expenses.
6. Investment Management Agreement: Draft agreements outlining fund management responsibilities, fees, and powers.
7. Regulatory Approvals: Obtain DFSA approvals, which vary by fund type (e.g., qualified investor funds can be approved within 14 days).
8. Launch: Finalize documentation, appoint service providers, and launch the fund.

Our Fund Setup Service manages this roadmap end-to-end, reducing setup time and complexity.

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Tools and Resources for Fund Setup

Navigating DIFC’s regulatory landscape requires:

• Legal Counsel: Specialized lawyers ensure compliance with DIFC regulations and fund documentation.
• Financial Advisors: Support in financial projections, capital requirements, and structuring.
• Administrative Support: Manages day-to-day operations and compliance filings.
• Compliance Services: External compliance officers help meet DFSA requirements.

DIFC allows 100% foreign ownership without local sponsorship, providing operational autonomy.

Our team coordinates these resources seamlessly to expedite your fund setup.

Legal Framework and Compliance with DFSA

DIFC offers flexible fund structures to suit diverse investor needs, including:

• Investment Companies: Open-ended or closed-ended, suitable for various strategies.
• Limited Partnerships: Popular for hedge funds and private equity funds.
• Investment Trusts: An investment trust is a closed-ended collective investment vehicle, often used for property funds, that can be listed and regulated for specific asset management and distribution purposes.

Investment funds in DIFC are categorized based on investor eligibility:

• Public Funds: Open to retail clients, subject to stringent disclosure and oversight. The public fund regime provides enhanced investor protection through independent oversight and detailed disclosures.
• Exempt Funds: Open only to professional clients, with lighter regulation. The exempt fund regime offers a fast-track notification process and reduced regulatory requirements compared to public funds.
• Qualified Investor Funds: For high-net-worth professional clients, with fast-track approvals.

Specialist funds include:

• Islamic Funds: Require DFSA authorization to conduct Islamic financial business.
• Hedge Funds: Must comply with the DFSA Hedge Fund Code for risk management.
• Private Equity Funds: Typically closed-ended and for professional investors.
• Venture Capital Funds: Focused on startups and SMEs, also closed-ended.
• Property Funds: Invest primarily in real estate related assets, with specific regulatory requirements.

Public property funds must list on an authorized market institution or exchange within six months and maintain annual valuations.

• External Fund Managers: Must be licensed in a recognised jurisdiction to manage funds domiciled in DIFC.

Our Fund Setup Service ensures your fund structure complies with all regulatory requirements.

Exempt Funds: A Flexible Option

Exempt funds in DIFC are open to only professional investors with minimum subscriptions of $50,000. They benefit from:

• Fast-track notification processes.
• Reduced regulatory burdens compared to public funds.
• Flexibility to be managed by domestic or external fund managers.

Exempt funds balance efficiency with adequate investor protection, making them popular among experienced investors.

We assist in structuring and launching exempt funds efficiently.

Tax Environment and Financial Benefits

DIFC guarantees zero corporate and income tax on profits, capital gains, and income for investment funds for at least 50 years, providing long-term financial stability. This tax neutrality makes DIFC highly attractive for fund managers seeking to maximize returns.

Additionally, no withholding taxes apply on dividends, interest, or royalties, enhancing tax efficiency.

Our Fund Setup Service helps you leverage these tax benefits fully.

Investor Confidence and Market Access

DIFC’s reputation for regulatory excellence, combined with its strategic location, attracts a diverse investor base, including:

• Sovereign wealth funds.
• Institutional investors.
• Family offices.
• High-net-worth individuals.

Connectivity to over 200 cities worldwide enables fund managers to access emerging markets effectively.

Our service supports marketing and distribution strategies aligned with DFSA regulations to enhance investor trust.

Real-Life Setup Experience and Exit Options

Fund managers value DIFC’s efficient exit options, such as:

• Seamless migration of funds to Cayman or Luxembourg without asset liquidation.
• Smooth inward migration of Cayman feeder vehicles.

While challenges exist, such as managing open-ended umbrella funds, the benefits and support available in DIFC outweigh these hurdles.

Our experts provide guidance on exit strategies to safeguard your investment lifecycle.

Operational Efficiency and Support

Wincore Advisory and other service providers offer strategic assistance in fund setup and compliance. Outsourced services like Compliance Officer and Finance Officer roles help meet regulatory obligations.

UAE-friendly fund administrators play a vital role by:

• Calculating net asset value (NAV).
• Processing subscriptions and redemptions.
• Reconciling trades.
• Producing financial statements.

The DIFC Courts operate under common law, offering legal certainty and security.

Our Fund Setup Service coordinates these operational elements to ensure smooth fund management.

Marketing and Distribution

Marketing investment funds in DIFC requires compliance with DFSA rules ensuring:

• Accuracy and transparency in marketing materials.
• Targeted approaches for professional, institutional, or retail investors based on fund type.
• Maintenance of records and compliance archives.

Adhering to these rules builds investor trust and supports industry growth.

Our team assists in developing compliant marketing strategies.

Costs and Fees

DFSA mandates transparency in fees, including:

• Management fees.
• Performance fees.
• Licensing and regulatory fees.
• Service provider costs such as fund administrators, auditors, and legal counsel.

Understanding and budgeting for these costs is essential for fund viability.

We provide detailed cost breakdowns and budgeting assistance.

DIFC Private Equity Funds

DIFC private equity funds are typically closed-ended and open exclusively to professional investors. These funds invest in the equity and debt of privately held companies, focusing on long-term growth potential. Private equity firms act as institutional investors in these funds, bringing expertise in investment strategies and fund management. A private equity fund is structured specifically to invest in private companies and is subject to DIFC regulatory distinctions, such as being classified as either an open-ended or closed-ended fund targeted at professional investors. They may be structured as either an exempt fund or a qualified investor fund, depending on investor eligibility and fund objectives.

Key features include:

• Capital calls via draw-downs.
• Advisory committees for limited partners.
• Borrowing limits to maintain economic substance.
• Exit strategies including trade sales, secondary buyouts, and listings on exchanges like Nasdaq Dubai.

Our Fund Setup Service guides you through structuring and compliance for DIFC private equity funds.

DIFC Venture Capital Funds

DIFC venture capital funds focus on startups and high-growth SMEs, operating as closed-ended funds restricted to professional investors. They resemble private equity funds but involve smaller ticket sizes and higher risk profiles.

Important aspects include:

• Early-stage investment focus.
• Minimum subscription requirements aligned with exempt or qualified investor regimes.
• Use of convertible notes and other flexible instruments.
• Support from initiatives like DIFC FinTech Hive accelerators.

Our consultants help tailor your venture capital fund to meet DIFC regulatory and market demands.

DIFC Hedge Funds

DIFC hedge funds pool capital from professional or institutional investors to invest in diversified portfolios employing complex strategies. Fund managers must adhere to the DFSA Hedge Fund Code, ensuring effective risk management through:

• Segregation of dealing and middle-office functions.
• Regular stress testing and risk reporting.
• Compliance with valuation and fund valuation processes.

We assist fund managers in meeting these rigorous standards for DIFC hedge funds.

DIFC Property Funds and Real Estate Investment Trusts (REITs)

A property fund, under DIFC regulations, is a collective investment scheme that primarily invests in real estate or property-related assets and must comply with specific structural, investment, and regulatory requirements.

DIFC property funds invest primarily in real estate related assets, operating as closed-ended funds. The fund property refers to the assets held by property funds, which must be valued according to regulatory standards and are subject to investment and leverage restrictions. Public property funds face specific restrictions, including:

• Investment limited to physical property or property-related assets.
• Listing on an authorised market institution within six months.
• Borrowing capped as a percentage of net asset value.

Real estate investment trusts (REITs) are a specialized subset designed for income generation, distributing a significant portion of net income annually. Pension funds are significant institutional investors in property funds, attracted by their stable, income-generating characteristics and regulatory advantages.

Our Fund Setup Service ensures compliance with these requirements, helping you capitalize on property-related investment opportunities.

Islamic Funds and Islamic Business Policies

Islamic funds in DIFC require fund managers to be authorized by the DFSA to conduct Islamic financial business. Establishing an Islamic fund in DIFC requires DFSA authorization and adherence to Shari’a governance. These funds adhere to Shari’a governance, including:

• Appointment of Shari’a supervisory boards.
• Compliance with Islamic business policies.
• Fatwa approvals and income purification processes.

We provide expert guidance on establishing and managing Islamic funds within DIFC’s regulatory framework.

Fund Documentation and Compliance

Key relevant fund documents include:

• Private Placement Memorandum (PPM).
• Subscription Agreements.
• Investment Management Agreements.
• Fund Constitutions or Limited Partnership Agreements.

These documents detail fund terms, investor rights, management responsibilities, fees, and risk disclosures. They are required to ensure adequate investor protection through detailed disclosures and governance standards.

Our legal team assists in drafting and reviewing these documents to meet DFSA standards. The DFSA’s regulatory framework is designed to provide adequate investor protection by implementing comprehensive compliance requirements.

Fund Valuation Processes and Audited Annual Net Income

Accurate fund valuation is critical for transparency and investor confidence. DIFC funds must implement robust fund valuation processes, often requiring independent valuation services.

Audited annual net income reports provide investors with verified financial performance data, supporting compliance and trust.

We coordinate with fund administrators and auditors to maintain high standards in valuation and reporting.

The Fund Management Service Sector in DIFC

DIFC’s fund management service sector includes:

• Fund administrators.
• Custody providers.
• Trustees.
• Auditors.

These entities play essential roles in fund operations, compliance, and investor protection.

Our network connects you with reputable service providers to support your fund’s success.

Foreign Funds and Marketing in DIFC

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Conclusion

In conclusion, the Dubai International Financial Centre (DIFC) offers a compelling proposition for investment funds seeking to establish a presence in the MEASA region. With its world-class infrastructure, tax efficiency, and robust regulatory framework, the DIFC provides an ideal environment for qualified investor funds, private equity funds, venture capital funds, hedge funds, and a wide array of other investment vehicles.

Fund managers—whether domestic or external—benefit from a business-friendly regulatory framework that ensures adequate investor protection while supporting innovation and growth. The DIFC’s commitment to transparency and compliance, combined with its access to emerging markets and a diverse investor base, makes it a top destination for both fund managers and financial institutions.

From public funds and exempt funds to qualified investor funds, the DIFC accommodates a broad spectrum of investment strategies and structures. Its regulatory environment, overseen by the Dubai Financial Services Authority, is designed to foster trust and stability, making it attractive for both professional and institutional investors.

Whether you are a domestic fund manager looking to launch a new fund, an external fund manager seeking a strategic base, or an investor exploring opportunities in private equity, venture capital, or hedge funds, the DIFC stands out as a premier choice. Its blend of tax efficiency, regulatory excellence, and market connectivity ensures that investment funds can thrive while providing adequate investor protection and access to the dynamic opportunities of the MEASA region.