Company Formation in DIFC: A Guide for Indian Fund Managers and AIF

Introduction to DIFC for Alternative Investment Funds

The Dubai International Financial Centre (DIFC) is a top financial hub in Dubai, known for business, fintech, and lifestyle. Established in 2004, it ranks among the top 10 global financial centers. DIFC is unique because it operates under a Common Law framework with its independent regulator, the DFSA, and a separate judiciary, DIFC Courts. Besides business, DIFC is also a lifestyle destination, offering shops, cafes, restaurants, art galleries, apartments, parks, and hotels.

Strong India-UAE Ties

India and the UAE share a close relationship that goes back centuries. High-level visits by leaders from both countries highlight this strong bond. In 2015, the Indian Prime Minister and the UAE's leader announced a $75 billion fund to boost ties further. With 3.2 million Indians living in the UAE, they form the largest expat community in the country. The trade between India and the UAE has grown significantly, with bilateral trade crossing $52 billion in 2016-17. India is the third-largest foreign direct investor in the UAE, with $6.5 billion invested, and Indians are the largest foreign buyers of Dubai real estate.

Why Choose DIFC for Business Setup in Dubai?

DIFC is one of the only two financial free zones in the UAE, offering 100% foreign ownership, unlike the Dubai mainland, where full foreign ownership is restricted. For Indian investors, DIFC is a gateway to markets in the Middle East, Africa, South Asia (MEASA), Europe, Asia, and the Americas—a region with an estimated $7.4 trillion in annual trade.

Indian Companies and DIFC

DIFC has a strong track record of attracting Indian companies, especially in wealth management, banking, and legal services. Indian companies are a key part of DIFC's strategy, with plans to triple its operations by 2025. Major Indian banks like SBI, ICICI, and Axis Bank have set up in DIFC, benefiting from its robust business infrastructure and access to a large non-resident Indian community of 3.3 million.

Advantages of Setting Up in DIFC

1. Legal and Regulatory Benefits
• 100% foreign ownership allowed
• No restrictions on hiring foreign employees
• Free capital repatriation
  
  
2. Tax Advantages
• Zero tax on profits, capital, or assets for 50 years
• No tax on employee income
  
  
3. Trust and Confidence
• Independent regulator (DFSA)
• Common law judicial system, distinct from UAE's legal system
  
  
4. Thriving Ecosystem
• Hub for international firms, investment funds, banks, and financial institutions
• Home to top law and auditing firms
  
  
5. Strategic Location
• Positioned to benefit from the growing South-South trade between Asia and Africa
• Central to the global economy with a focus on emerging markets
  
  

Category 3C – Asset Management and Fund Management

• Base Capital Requirement: USD 500,000
• Base Capital for Exempt and Qualified Investment Fund Managers: USD 70,000
• Main Activities: Managing assets, providing custody, issuing stored value for money services.

Category 3C licenses are for companies involved in managing assets, funds, or providing other financial services like trust services or custody. Asset managers under this category can apply for a modification of the rules depending on their activities.

How Can Indian Fund Managers Set Up in DIFC?

Indian Fund Managers have two primary options:

1. External Fund Manager
• Recognized by DIFC if regulated by SEBI, India's financial regulator
• Can manage domestic funds like DIFC Exempt Funds and Qualified Investor Funds
  
  
2. Domestic Fund Manager
• Fast-track option available for setting up under a Category 3C license
  
  

Types of Funds in DIFC

1. Exempt Funds
• Minimum subscription of $50,000
• Limited to 100 unit-holders
• Offered via Private Placement
  
  
2. Qualified Investor Funds
• Minimum subscription of $500,000
• Limited to 50 unit-holders
• Offered via Private Placement

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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 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

Required appointments (In Detail)

As with other category firms, the DFSA expects that the firm be adequately staffed depending on the scale, scope and nature of the product portfolio that is proposed to be offered from the DIFC. At a minimum, the DFSA would like to see the following appointments:

Board of Directors – a well-organized, diverse Board with Independent Directors and robust governance policies. The Chair would have to be a non-executive Director.

Senior Executive Officer (SEO) – Senior banking professional with over 10-15 years of experience, ordinarily resident in the UAE.

Finance Officer (FO) – Senior and suitably-qualified finance professional. In case of a group, the FO can be from the parent company and does not have to be resident in the UAE. This role can be outsourced to us.

Risk Officer – Senior risk professional, can be from the parent entity in case of a group.

Compliance Officer (CO) - Senior compliance professional with over 10 years of experience, ordinarily resident in the UAE. This role can be outsourced to us.

Money-Laundering Reporting Officer – Senior AML professional with over 10 years of experience, ordinarily resident in the UAE. This function can be combined with Compliance and one individual can carry out both responsibilities.

Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.

External Auditor - Senior and suitably qualified external audit firm. The DFSA maintains a list of recognised auditors, and there are 15 such firms at present.


Total cost Bifercation = Annual License Fees + One Time Registration / Application Fees + Hiring of Required Appointments + Annual Office Lease + Annual Visa Cost + One Time T&T Consultancy & Service Fees

Conclusion

DIFC is an ideal location for Indian Fund Managers looking to expand into the MENASA region. With a strong regulatory framework, tax advantages, and a vibrant ecosystem, DIFC offers a solid base in Dubai for financial companies to grow and serve the large Indian community in the UAE.

Frequently Asked Questions

1. What are the benefits of setting up a company in DIFC?
• 100% foreign ownership, zero taxes, and a supportive legal framework.
  
  
2. Can Indian Fund Managers operate in DIFC?
• Yes, they can set up as External or Domestic Fund Managers, with DIFC recognizing SEBI as a comparable authority.
  
  
3. What types of funds can be established in DIFC?
• DIFC offers Exempt Funds and Qualified Investor Funds, catering to Professional Clients.
  
  
4. Why is DIFC a preferred location for Indian companies?
• DIFC provides access to the MENASA markets, a strong regulatory environment, and a large Indian expatriate community.

Our Services

Talreja & Talreja LLC assists with:

• Reviewing fund structures and advising on regulatory frameworks
• Preparing Regulatory Business Plans and financial projections
• Providing outsourced compliance and finance officer services
• Setting up legal structures and fund documentation
• Assisting with bank account opening and obtaining necessary permissions
  

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4 Important things to do by an Indian Businessman after Company set up in Dubai & U.S.A

Being an Indian Individual Resident or an Indian Company, Once you have incorporated a company in Dubai, U.S.A, Singapore or any overseas Jurisdiction, you are required to follow the below mentioned Laws, Rules and Regulations in India.

Kindly take a note of it and see whether you have complied with all the Indian Regulations as mentioned below after the Company Setup in Dubai or any overseas jurisdiction -

a. Form FC with your Indian Bank
Reporting of Incorporation with your Indian Bank Within 30 days after incorporating a entity in overseas jurisdiction.

b. Annual FLA Return - before 15th July every year
only if you have a opened a branch or subsidiary Overseas (Individual shareholders are not required to submit this FLA Return)

c. Annual Performance Return APR - before 31st Dec every year
To be filed by all - Individual Shareholders also or if you have opened a Branch or Subsidiary in Overseas

d. Annual Audit Report along with APR Return to be filed in India -
Audit Report of your Overseas Entity by Overseas Auditor of that country -
in case Parent-Branch, Holding-Subsidiary concept.

Audit Report of your Overseas Entity either by Overseas Auditor of that country or by Auditor of your Home Country (Indian CA) -
in case Individual Shareholding in overseas Entity -
Subject to bank’s protocols and acceptance.

Majority of the Businessman and consultants are not aware about these regulations in India and the Businessman starts receiving Penalty as well as Non-compliance Notices from Reserve Bank of India RBI as well as from Indian Bankers. Hence, we thought to share the things in simplified manner to make Indian Businessman aware about these norms.

You need to contact the indian FEMA Consultant like Talreja & Talreja to assist you with all the above mentioned compliances to do hassle-free business out of India.


Frequently Asked Questions & Answers FAQs

1. To whom FEMA Provisions are applicable ?
FEMA Provisions in India are applicable to Indian Residents and Indian Companies

2. When FEMA Provisions are applicable to Indian Residents and Indian Companies ?
As soon as you plan to invest or transfer funds outside India, FEMA, ODI and LRS Norms get applicable to you. ODI means Overseas Direct Investment in case of Indian Companies making payment outside India and LRS means Liberalized Remittance Scheme in case of Indian Resident Individuals making payment outside India.

As soon as you form a company in Dubai or any overseas jurisdiction, FEMA provisions will get applicable in that case as well.

3. What are the FEMA Provisions to be followed in India after setting up a company overseas ?
You need to file Form FC, FLA, APR and Audit report of your overseas entity as mentioned above in detail with your Indian Bankers and RBI as per FEMA Norms.

4. What if my Issued and Paid up Capital in Overseas Entity is almost of a Zero value. Do i still need to file Form FC, APR and FLA Return in India ?
Yes. Even if you have zero capital issued or zero capital paid up, then also you need to comply with the FEMA Provisions and submit the Form FC, FLA, APR and Audit Report on case to case basis.

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