The Dubai International Financial Centre, or DIFC, is a leading financial hub in the region for business, fintech, and lifestyle. Setup in 2004, the DIFC has grown to be one of the top 10 onshore financial centres in the world. It brought in a paradigm change in the region, by adopting a Common Law framework, with an independent regulator (DFSA) and an independent English language Common Law judiciary – DIFC Courts.
Since then, the DIFC District has matured into more than just a place to work – it is now a lifestyle destination, with retail outlets, cafes and restaurants, art galleries, residential apartments, public green areas and hotels dotting the landscape.
The Hong Kong - UAE relationship:
The UAE has a close relationship with Hong Kong and they have signed several international agreements, including the double taxation avoidance agreement signed in 2014-15. The UAE is Hong Kong’s largest economic partner in the Middle Eastern region, and the 19th biggest worldwide. UAE’s exports to Hong Kong stood at US$ 4.3 billion in 2018-19, and the UAE’s imports from the island were US$ 6 billion in the same period.
In 2018, the UAE Ministry of Finance signed an MOU with the Government of Hong Kong, to encourage bilateral investments. Coupled with the double taxation treaty, the UAE remains an attractive destination for residents of Hong Kong who wish to expand their business into the Middle East.
Taxation under the Hong Kong-UAE double tax treaty:
The new comprehensive double taxation avoidance treaty between the two countries covers profits, salaries and properties in Hong Kong, and income and corporate taxation in the UAE. This makes the UAE the go-to destination for Hong Kong businesses looking for a foothold in the Middle East and North Africa. The presence of free zones such as the Dubai International Financial Centre (DIFC), which applies Common Law and has a 50-year guaranteed tax holiday, reinforces the value proposition of the UAE as an attractive jurisdiction for tax planning purposes.
Why setup in the DIFC?
The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted. The DIFC is the preferred gateway for investors from Hong Kong to access the Middle East, Africa and South Asia (MEASA) markets on one side and Europe, Asia and the Americas on the other – a region worth an estimated USD 7.4 trillion in annual trade.
DIFC as a gateway to growth for Hong Kong Companies
The DIFC has a long and successful track record of attracting and supporting Hong Kong companies, and DIFC envisages a major role for Hong Kong’s business community as it seeks to triple the size of its operations over the next 10 years. Overseas business is core to the DIFC 2024 Strategy, with a target to increase the number of firms from Hong Kong (including Fintech firms) to over 100 in the next ten years.
Hong Kong firms have a good presence in the DIFC, with companies in wealth and asset management, banking and fintech services choosing the DIFC as a strategic hub.
Also, in 2018, the DIFC Courts and the Hong Kong High Court signed a Memorandum of Guidance to enhance enforcement of cross-border judgments in both countries.
The DIFC aims to provide a supportive platform for businesses from Hong Kong seeking new markets and territories. Hong Kong companies would benefit from the DIFC’s robust business infrastructure and also gain access to the world’s largest non-resident South East Asian community, an estimated 4 million people.
Financial Service Companies:
Firms that wish to engage in financial service activities, will find that the DIFC as a jurisdiction brings with it credibility and certainty. The laws and DFSA Regulations are comprehensive, robust, and clear. Prospective clients take comfort in the fact that DIFC-based companies are well regulated. Institutions and market counterparties find it easier to deal with DIFC firms, since they are onshore.
Financial firms that operate in markets around the world can use their DIFC setup to cover the time gap between London and Europe in the West, and Mumbai and Shanghai in the East.
There are over 2,000 firms that currently operate out of the DIFC. This in itself has created a financial ecosystem where firms can engage, discuss and make deals, hold events and conduct business. A strong network of service providers such as consultancies, audit and accounting firms, and corporate service providers further makes DIFC the jurisdiction of choice.
The following financial service activities can be carried out from the DIFC:
- Wholesale Banking
- investment banking
- Insurance Management
- Private banking
- Fund management
- Asset management
- Brokerage and
- investment advisory services
Read our detailed article on licensing categories within the DIFC here.
Non-financial companies:
The world’s most successful financial centres create a broad base of economic activity. Non-financial firms provide the goods and services that core financial firms require in order to operate effectively. These include business consultancies, law firms, professional service providers and even businesses such as travel agencies and translation services.
Not everything revolves around work however. Professionals look for a holistic lifestyle, and personal services such as tailoring, salons, gymnasiums, retail outlets such as restaurants and coffee bars, and even fine dining options to entertain their clients.
The DIFC also offers a wide range of non-regulated activities, such as corporate offices, regional headquarters, family offices, holding companies and proprietary investment companies. Consultancies, service providers and product providers can also establish in the centre. These entities are not subject to regulation by the DFSA and are authorised directly by the DIFC Registrar of Companies.
Retail Outlets:
DIFC is situated in a prime location in Dubai, next to the iconic World Trade Centre and opposite Emirates Towers, parallel to the arterial road of Dubai - Sheikh Zayed road. Over 22,000 professionals live and work in the DIFC area. This presents a lot of opportunities for retail concepts, both high-end and bespoke. While there already exists a number of fine dining options, tailoring and shopping outlets and cafes, the upcoming Gate Avenue under the DIFC 2.0 master plan will provide a seamless, fully connected year-round walkable destination including an outdoor promenade.
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
Conclusion:
The DIFC is a premier destination to live and work and brings with it several advantages and efficiencies. Setting up a company in the DIFC allows financial companies to have a base in Dubai and cater to the expanding MENASA market. It also helps service providers to have a presence in the heart of Dubai, and service multinational firms from the world over. And yes, retail concepts are able to get traction by attracting the attention of high-end clientele!
Hong Kong companies have long operated in the region. The DIFC provides an excellent platform for financial, non-financial and retail companies from Hong Kong to explore the MENASA region and provide services to the large expatriate community, both in the UAE and in the GCC.
Contact us to discuss about opportunities in DIFC
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