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, Exempt 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.
The DIFC has also now proposed a Venture Capital Fund regime, that aims to attract VC firms from all over the world, into the centre.
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
- Zero tax for 50 years on profits, capital or assets from 2004
- Zero tax on employee income
- Highly regarded, independent regulator
- Independent, English-speaking, common law judicial system
- Distinct from the UAE legal system
- Risk-based regulatory approach
- 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
- 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 Fund Manager Regime:
The DFSA has issued the Consultation Paper No. 133, that proposes a VC Funds Regime in the DIFC.
How does the DIFC propose to define a VC fund
A VC fund would have to:
- Be an Exempt Fund or a Qualified Investor Fund, open to Professional Clients only;
- Be a closed-ended fund;
- Invest at least 90% of it’s committed capital in unlisted businesses, which are not more than 5 years old; and
- Fund the underlying ventures through equity instruments only
In addition to the above, the DFSA Consultation Paper proposes to:
- Allow self-custody of fund property;
- Make the appointment of an investment committee optional;
- Allow VC funds to invest more than 25% in a single undertaking;
- Make internal audit of the fund manager optional;
- Remove the requirement for a Finance Officer; and
- Apply simpler capital requirements
The DFSA also proposes reducing the application and supervision fee for Venture Capital Fund Managers to US$ 2,000 each, and US$ 1,000 per annum for the venture capital fund.
Firms interested in managing venture capital funds from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.
The DFSA has a fast-track process for Fund Manager licenses, which come under Category 3C. The Fund Manager, if approved, can manage domestic (Exempt and Qualified Investor Funds) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.
The DFSA proposes to issue in-principal approvals for Venture Capital Fund Managers in one week after receipt of an application.
DIFC Capital requirements:
The current base capital requirement for a Category 3C Venture Capital Fund Manager is $70,000, if it manages Exempt (EF) or Qualified Investor Funds (QIF). Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.
The DFSA proposes to have more flexible requirements for a VC fund under the new DIFC Venture Capital Funds Regime.
Setting up a DIFC Regulated Firm involves the following interactions:
Dubai Financial Services Authority (DFSA):
The DFSA is responsible for reviewing and approving all applications for financial services. Costs depend on the activities applied for, which puts the applicant in one of five categories.
Generally, there are two components of DFSA fees. One – an application processing fee, and the other, an annual licensing fee.
Here are the proposed changes:
Application fee: US$ 2,000 for a Fund Manager license application.
License fee: from US$ 2,000 for a Fund Manager license application.
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$ 0 (was US$ 800 earlier)
Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 0 (was US$ 8,000 earlier)
Commercial License on Incorporation (5 working days): US$ 2,000 (annual fee) for two years, US$ 12,000 per annum subsequently
The DIFC has special incentives for VC Fund Managers. Do get in touch to discuss.
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
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 Co-working Centre – from a dedicated desk at US$ 500 per month.
DIFC Fitted Offices – from US$ 55 per square foot.
Other buildings – from US$ 32,000 per annum
Establishment Card Application – US$ 630
PSA Deposit – US$ 682
Visas (per visa) – from US$ 1,500
PSA Deposit (per visa) – US$ 682
We provide turnkey services for New DIFC Venture Capital Funds Regime. 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.
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.
Read more about DIFC Venture Capital Funds by clicking here.
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.
Contact us to discuss your fund requirements today!