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 a Venture Capital 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 Funds, Exempt Funds 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.
DIFC Venture Capital Funds
A Venture Capital fund makes investments in the equity and debt of privately-held companies, focusing on the long-term potential of the acquisition, much like private-equity firms. These investments are usually made in early startup companies, before the larger Private Equity rounds, and hence these investments are characterized by smaller ticket sizes, and higher risks. Due to the illiquid nature of these investments, VC funds are usually closed-ended, for a fixed tenure and can be structured as Closed-ended Investment Companies or Partnerships.
In the DIFC, Venture Capital Funds are closed-ended and open to only Professional Investors. A DIFC VC Fund can be either an Exempt Fund or a Qualified Investor Fund.
Exempt Funds
Exempt Funds are open only to Professional Clients (as defined by the DIFC). The other features of an EF are:
- Minimum subscription of US$ 50,000; and
- Units are offered to persons only by way of a Private Placement.
Qualified Investor Funds
Qualified Investor Funds are open only to Professional Clients (as defined by the DIFC). The other features of a QIF are:
- Minimum subscription of US$ 500,000; and
- Units are offered to persons only by way of a Private Placement.
Incentives for VC funds in the DIFC
The DIFC offers a subsidised fee structure for VC fund managers of exempt funds and qualified investor funds. Read this article to know more.
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.
A Venture Capital fund in the DIFC will also need to appoint some service providers to carry out critical functions, such as fund administration and audits. Read this article on the different services associated with maintaining a VC fund in the DIFC.
Did you know that a Private Placement Memorandum, or PPM, is the key document for DIFC Investment funds? The PPM details material information on the fund and serves as the backbone of the legal documentation involved. Read this article to know more about the documents required for setting up a VC fund in the DIFC.
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