News

The simple way to establish an investment fund in the Dubai International Financial Centre (DIFC)

Posted: 19 Aug 2021

Why?

Creating a fund in the Dubai International Financial Centre (DIFC) offers a safe and regulated zone with which to develop and grow. The DIFC’s independent regulator oversees the common law framework. Along with infrastructure and tax efficiencies the DIFC is an attractive location for a fund looking for international presence and exposure to the MENASA region. Dubai fuses the trade link between Hong Kong, Europe, and the United States.

PROFESSIONAL AND FINANCIAL ADVANTAGES OF THE DIFC

  • Financial stability
  • Wide range of licensing options
  • Wide range of financial and other services
  • World class consultants – auditors, lawyers, custodians
  • Highly regarded internationally
  • Frameworks support cross-border activities
  • 100% foreign ownership
  • No restrictions on capital repatriation
  • 0% tax on profits for 50 years
  • 0% tax on employee income
  • Independent regulator
  • Distinct from the UAE legal system
  • Independent, English speaking common law judicial and jurisdiction system
  • Large drive for start-ups particularly fintechs and regtechs
  • Dubai Hive and financial incubators

GEOGRAPHIC ADVANTAGES

  • Largest financial and fund domicile in the region
  • Ideal corridor to MENA and APAC
  • Clients located closer to their assets and funds
  • Ideally positioned to take advantage of cash flows through the region
  • Ideally positioned to capitalise on emerging markets

ESTABLISHING A DIFC FUND

To establish an investment fund in any region, it is necessary to choose the correct legal vehicle, structure, and strategy to enable the greatest chance of success and meet the commercial and financial goals. A person wishing to set up a fund must prepare a regulatory business plan along with comprehensive and accurate financial projections to present to the DFSA. Setting up the fund structure in the DIFC requires setting up a Domestic Fund Manager or licensing an existing fund manager in a recognised jurisdiction to act as an External Fund Manager of the DIFC fund (Domestic Funds and Foreign Funds).

FUND TYPES

Domestic Funds

Domestic Funds are Collective Investment Funds established of domiciled in the DIFC. These can be sub-divided into three sub-categories of fund, Public Funds, Exempt Funds and Qualified Investor Funds (QIF) and these can be sub-categorised into specialist categories such as Islamic Funds, Master Feeder Funds, Fund of Funds, Property Funds, Private Equity Funds/Pools, Real Estate Investment Trusts (REITs), Hedge Funds, Money Market Funds, Umbrella Funds (Incorporated Cell Companies and Protected Cell Companies).

  • Every fund is required to have a written Constitution which has certain statements and disclosures as prescribed by the Collective Investment Rules
  • They must not have an undesirable, misleading or conflicting name (and must not contain words including ‘guaranteed’ or ‘protected’ or similar words indicating or implying protection) - this also crosses over to financial promotions which will be the substance of a different article
  • Every fund must have a written Prospectus
  • Public Funds are required to have a ‘long form’ Prospectus
  • Every fund must appoint an auditor recognised by the DFSA and to arrange for the legal title of the Domestic Fund’s assets to be placed with an Eligible Custodian for safekeeping
  • Certain activities are permitted to be outsourced to third party providers located in or outside the DIFC (for QIF and Exempt Funds only)

Foreign Funds

Foreign Funds are Collective Investment Funds that are domiciled or established outside of the DIFC. The DIFC and DFSA only allow certain foreign funds domiciled in certain jurisdictions and that are structured appropriately to meet the criteria to be distributed and promoted in the DIFC. These can be divided into two sub-categories, Designated Foreign Funds and Non-Designated Foreign Funds. The legal vehicle for Domestic Funds can be one of three structures – Investment Companies, Investment Partnerships, or Investment Trusts.

LEGAL FUND VEHICLE

Investment Company

Investment Companies (including Protected Cell Companies) are formed under the Companies Law, DIFC Law No.2 of 2009 as amended and the Companies Regulations (COR).

Documentation required for an Investment Company -

  • Private placement Memorandum
  • Subscription Agreement
  • Investment Management Agreement
  • Fund Constitution Document

Investment Partnership

Investment Partnerships are formed under the Limited Partnerships Law, DIFC Law No.4 of 2006 as amended and the Limited Partnership Regulations (LPR).

Documentation required for an Investment Partnership:

  • Private Placement Memorandum
  • Limited Partnership Agreement
  • Subscription Agreement
  • Investment Management Agreement
  • Fund Constitution Document

Investment Trusts 

Investment Trusts are formed under the Investment Trust Law 2006, DIFC Law No.5 of 2006 as amended. These are more complex structures and depend on the specific requirements of the client.

FUND STRUCTURE

Public Funds

  • Units are offered by way of public offering and there are no limits placed on the types of investments or on the number of investors who may invest
  • Regulation is more onerous (must be DFSA registered, establish and maintain independent oversight arrangements and must manage the assets within the parameters of the investment and borrowing rules)

QIF

  • Units may only be offered for issue or sale by private placement to 50 or fewer unitholders(professional)
  • Minimum subscription of USD 500,000
  • Regulation is less stringent that for Public or Exempt Funds

Exempt Fund

  • Units may only be offered for issue or sale by private placement with up to 100 unitholders(professional)
  • Minimum subscription of USD 50,000
  • Private funds are not required to be registered with the DFSA but Fund Managers of private funds are required to notify the DFSA of their existence

FUND STRATEGIES

  • Long/Short Equity
  • Market Neutral
  • Merger Arbitrage
  • Convertible Arbitrage

Event-Driven

  • Credit
  • Fixed-Income Arbitrage
  • Global Macro

SERVICES OFFERED BY KASHWANI LAW FIRM AND SPENCER WEST LLP

  1. Advise on and create the fund structure within the DIFC
  2. Prepare strategy and business plans including projections
  3. Prepare policies, memorandums, terms, subscription and investment management agreements
  4. Advise and organise outsourced internal professional such as compliance, auditors, finance and legal
  5. Draft and ensure the correct and most efficient legal structure
  6. Create Articles, constitutions and memorandums
  7. Prepare and advise on applicable fund documentation depending on the structure and legal vehicle, including private placement memorandums, subscription agreements, fund constitutions
  8. Organise the appointment of external administrators and auditors Incorporation
  9. Organise bank accounts and other financial requirements
  10. Organise licensing with the DIFC and DFSA

 

 


Article written by: