Guide to the DIFC Crowdfunding Business License - 10 Leaves

  • 18-09-2020
DIFC is one of the world’s top ten onshore financial centers and offers a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region. The quality and independence of DIFC’s regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in the MENASA region.

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 financial services firm 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.

There exist opportunities for startups as well. The recent focus on fintech led to the DIFC Fintech Hive initiative, that serves as an accelerator for fintech firms to test their products and pitch it to prospective investors.

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

What is crowdfunding?

The past few years has seen disruptive innovation in financial technology and the financial services sector is changing access to finance in more ways than one. Crowdfunding, as the name suggests, involves sourcing finance from the ‘crowd’, or a large pool of individual investors (mostly retail), as opposed to obtaining finance from a bank or other financial institutions.

At the core of the crowdfunding business is a platform, based on innovative technology, that can be a combination of a website and an app. This platform offers an online marketplace for seekers of finance, and sources of finance (the crowd). Consequently, the DIFC licenses three main types of regulated crowdfunding businesses:

  • Investment-based crowdfunding - where businesses offer equity in return for finance;
  • Loan-based crowdfunding - where issuers offer an interest on monies borrowed under a loan agreement with lenders on the platform; and
  • Property-based crowdfunding - where the platform lists properties in which investors can take fractional ownership.

The DFSA currently does not regulate charity-based crowdfunding platforms, and hence there is no such license available at the DIFC.

DIFC Crowdfunding License:

Firms interested in carrying out crowdfunding activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises the crowdfunding business as a Category 4 entity, with the primary activity of “Operating a Crowdfunding Platform”. The base capital required for a DIFC Crowdfunding license is US$ 140,000.

The DFSA offers three types of crowdfunding licenses:

a. Investment-based Crowdfunding Platform

b. Loan-based Crowdfunding Platform

c. Property-based Crowdfunding Platform

DIFC Crowdfunding Platforms are able to cater to retail clients, with certain additional requirements to ensure retail client protection. For instance, retail investors will only be allowed to invest upto US$ 50,000 in a single calendar year.

Due to the nature of the license, and the recent issuance of crowdfunding regulations, the DFSA places slightly higher entry-level requirements and restrictions on the license itself.

You can also setup in the DIFC with a DIFC Innovation License, which is for non-regulated technology startups. Such a license encourages startups to establish a presence in the region, employ staff and prepare for regulation by then applying to the DFSA for regulatory approvals. You cannot however, carry out regulated activities until a Financial Services Permission has been obtained.

DIFC Capital requirements:

The base capital requirement for a Category 4 Crowdfunding Business license US$ 140,000. Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.

Costs:

Setting up a DIFC Regulated Firm to operate a crowdfunding platform involves the following interactions:

Dubai Financial Services Authority (DFSA):

The DFSA is responsible for reviewing and approving all applications for financial services.

Generally, there are two components of DFSA fees. One – an application processing fee, and the other, an annual licensing fee.

Application fee: US$ 5,000

Retail Endorsement fee: US$ 20,000

License fee: US$ 10,000 per annum.

Registrar of Companies (DIFC ROC):

The ROC helps to set up the legal structure of the DIFC Regulated Firm. Shareholders can be individual, or corporate. There are many options available, such as ‘Private Company Limited by Shares’ and ‘Limited Liability Partnerships’. In case of Private Company Limited by Shares, the costs for setting up include:

Application for reserving a name (2 working days): US$ 800

Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 8,000

Commercial License on Incorporation (5 working days): US$ 12,000 (annual fee)

Data Protection:

The data protection notification is part of the process of registering a new entity in the DIFC. The costs involved are as follows:

Registration - US$ 500

Annual renewal – US$ 250

Office spaces:

Every entity registered in the DIFC is required to lease a physical office. You can choose from the Gate and surrounding buildings, or other buildings within the DIFC, such as Emirates Financial Towers, Central Park, Park Avenue, Burj Daman and Currency House.

Prices vary, depending on the space availed and the building. Here is an indication of the prevailing rates:

DIFC Fintech business centre – from US$ 19,000

DIFC Business Centre – from a two-desk office at US$ 35,000.

DIFC Fitted Offices – from US$ 55 per square foot.

Other buildings – from US$ 32,000 per annum

Visas:

Establishment Card Application – US$ 630

PSA Deposit – US$ 682

Visas (per visa) – from US$ 1,500

PSA Deposit (per visa) – US$ 682

Our Services:

We provide turnkey services for DIFC Crowdfunding business license applications. From fintech consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the DFSA Rulebook and submit an application that is comprehensive, complete and compliant.

Our services include assistance in:

1. Reviewing the business model and advice on the applicable regulatory framework;

2. Preparation of the Regulatory Business Plan and comprehensive financial projections;

3. Preparation of all policies, processes and manuals required;

4. Provision of Outsourced Compliance Officer and Outsourced Finance Officer services;

5. Finalising the legal structure, including holding company setup and customisation of Memorandums; and

6. Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.

 

Get in Touch today! to get more Information on DIFC Crowdfunding Business License

 

 
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