Setting Up In DIFC - Al Tamimi & Company

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Setting up in theDubai International Financial Centre

Setting up in theDubai International Financial Centre

Mustafa AhmedGordon BarrEdward BrownJustin CarrollMargaret ElderRita JaballahNatalie JonesTarek ShrayhIzabella SzadkowskaRoxanne Vesuvala

vSetting up in theDubai International Financial Centre

ForewordsIt is our pleasure to present to you thein the DIFC’.edition of our publication ‘Setting upHome toviEssam Al TamimiSenior PartnerAl Tamimi & CompanySetting Up in DIFC.indd 6Husam HouraniManaging PartnerAl Tamimi & Company11/2/17 11:33 AM

When the Dubai International Financial Centre (DIFC) launched in 2004, Dubai– supported by its thriving trade, aviation and tourism sectors – had begun toestablish its place on the world map. Today, with over a decade of experiencebehind us, the DIFC is well-positioned as the leading international financial hubfor the Middle East, Africa and South Asia (MEASA). This is driven, in part, by therobust and transparent legal and regulatory framework that has laid the foundationfor our success, the connectivity we have leveraged through Dubai’s strategicgeographical location, and of course, the zero tax benefit and 100 per centownership that has contributed to creating a world-class ecosystem for businessesand investors.Equally important are the partnerships we have formed with highly reputableinstitutions and firms, which have played a significant role in building a community22,000 individuals. Our ongoing collaboration with Al Tamimi & Company is noexception. The DIFC is proud to be associated with Al Tamimi & Company, whichhas proven itself as a source of expert advice on local and regional jurisdictions anda provider of specialised services to businesses operating throughout the UAE andthe wider Middle East.Looking forward, our 2024 Growth Strategy sets out to strengthen the Centre’soffering by deepening core synergies, building relevance in global sectors andfacilitating trade and investment across the South-South corridor. As DIFC movestowards expanding its client base, it is essential that we enhance our infrastructureto support this growth and provide clear and comprehensive guidelines to facilitateease of business. I trust this 4th edition of the Al Tamimi & Company ‘Setting up inthe DIFC’ guide will prove to be a highly informative tool in the launch or expansionof your company’s operations within DIFC.Arif AmiriChief Executive OfficerDIFC Authorityvii

ContentsC ha pter O ne: A n I ntr o d uc tio n tothe D I F C1An Introduction to the DIFCHow was the DIFC created?What does the DIFC offer?How is the DIFC made up?What are the areas of financial activity in the DIFC?What are the types of entities in the DIFC?What are the legal restrictions on DFSA regulated entities?How is setting up in the DIFC different from setting up in Dubai?Can an Authorised Firm operate from within the DIFC but have customersoutside the premises?What is the Legal and Regulatory Framework?C ha pter T w o : T he Str uc tur e o f the D I F CviiiL ic ens ing o f C o m121314171824pa niesRegistrar of Companies (ROC)Setting up a Regulated Entity in the DIFCSetting up a Non-Regulated Entity in the DIFCSetting up a Designated Non Financial Business or Profession (“DNFBP”)in the DIFCC ha pter F o ur : L a w , R ul es a ndR egul a tio ns in the D I F CLaw, Rules and Regulations in the DIFCKey Laws and RegulationsC ha pter F iv e: I s l a mic F ina nc e in the D I F CIslamic Finance in the DIFCWhat the DIFC offersThe Islamic Finance Category in the DIFCDisclosurePolicy and ProcedureShari’a Supervisory BoardDocumentationReviewsProfit Sharing Investment Accounts991 0The Structure of the DIFCThe key organisations in the DIFCThe main areas of financial activity in the DIFCThe Entities within the DIFCThe 7 Categories of Authorised Firms in the DIFCRepresentative OfficeC ha pter T hr ee: R egis tr a tio n a nd334555883 2343539404 446475 4565758585959606060

C ha pter Six : C o l l ec tiv e I nv es tment F und s6 2The Applicable LegislationWhat is a Collective Investment Fund?Arrangements Not Amounting to a Collective Investment FundThe Basic Categories of Collective Investment FundsManaging a Collective Investments FundDomestic FundsConclusionC ha pter Sev en: I ns ur a nc e in the D I F C7 2IntroductionThe Domestic Insurance MarketRestrictions on Writing UAE RiskEffects of regulatory framework on UAE and DIFC insuranceWhat Roles are regulated by the DFSAInsurance Intermediaries and ManagementTypes of Insurers within the DIFC and Requirements for Insurance BusinessTakafulOpportunitiesC ha pter E ight: A nti M o ney L a und er ing a ndF ina nc ing in the D I F CC o unter T er r o r is tAnti Money Laundering and Counter Terrorist Financing in the DIFCWhat is Money Laundering?Duties of a Company with respect to Money LaunderingThe ClientRecord-Keeping ProceduresRole of the Money Laundering Reporting OfficerTrainingSuspicious Activity ReportingTipping OffC ha pter N ine: E mpl o y ment L a win the D I F CIntroductionTypes of Employment ContractsInformation to be included in an Employment ContractProbation PeriodTermination of EmploymentEnd of Service GratuityMedical Insurance for EmployeesLeave EntitlementsBecoming an employee at the DIFC: Visa SponsorshipC ha pter T en: D I F CC o ur ts a ndDIFC Courts and ArbitrationDIFC CourtsDIFC ArbitrationA r b itr a tio n646565666768717474757676777880808 28485858787878888889 09292939394959696971 0 0102103112ix

Chapter One8

Chapter OneAn Introduction to the DIFC

Chapter One2A n I ntr o d uc tio n toA n I ntr o d uc tio n tothe D I F Cthe D I F CDubai is one of the fastest growing cities in the Middle East region. Itsbroad-based and diverse economy, and its well-developed infrastructure,makes it an attractive destination for foreign direct investment. The emirateoffers residents a stable political environment and a high quality of life. Itis amongst one of the safest cities in the world and it is a regional hub forinternational business.It is also ideally placed to help the Dubai International Financial Centre(DIFC) grow.The has DIFC acted as a catalyst for the region’s economic development.Initially established with the aim of bridging the gap between the world’smajor financial centres - London in Europe, Hong Kong in the Far East,and New York in the United States – DIFC is today known as the leadingfinancial centre for the Middle East and Africa region.DIFC is a well regulated hub for investment firms, and other financialinstitutions that wish to take advantage of the wealth of opportunities in

Introduction to the DIFCthe region by providing full banking services including deposit taking andprovision of credit, as well as providing services in respect of underwriting,mergers and acquisitions, venture capital/private equity, brokerage, tradefinance, asset management, capital market and Islamic finance operations.The Centre provides depth to the regional financial markets by broadeningthe range of financing options available in the region and attracting liquidityinto investment opportunities.H o ww a s the D I F Cc r ea ted ?The DIFC is a Federal Financial Free Zone attached to the Government ofDubai. It was established in accordance with United Arab Emirates (UAE)Federal Law and Dubai Law. The President of the DIFC is His HighnessSheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum, Deputy Rulerof Dubai.The DIFC was created by a synthesis of several UAE Federal and DubaiLaws, some of the key ones are as follows: An amendment of Article 121 was passed to the UAE Constitutionin order to allow the Federation to enact a Financial Free Zone Law.Therefore, Article 121 of the UAE Constitution now reads that the Unionshall have exclusive legislative jurisdiction in the following matters:“The order and the manner of establishing Financial Free Zones andthe boundaries within which they are exempted from having to applythe rules and regulations of the Union.” Federal Law No. 8 of 2004 was enacted, providing the basis forFinancial Free Zones throughout the UAE. This Law exempts FinancialFree Zones from Federal, Civil and Commercial Laws. As a result,each Financial Free Zone can create its own legal and regulatoryframework, covering civil and commercial matters. Federal Decree No 35 of 2004 was enacted, establishing the DIFC asa Financial Free Zone within Dubai. Dubai Law No 9 of 2004 recognised the financial and administrativeindependence of the DIFC and provided an exemption for the DIFCfrom certain rules and regulations otherwise applicable in Dubai. TheDIFC accordingly established its own legal and regulatory frameworkfor civil and commercial matters. Dubai Law No 12 of 2004 was enacted which established the DIFCJudicial Authority and the DIFC Court System.3

Chapter One“The DIFC has beenaccepting applicationsfor operating licences inthe Centre since 2004.The active participationand support of the world’sleading financial institutionswill help Dubai to becomethe regional gateway forthe flow of capital andinvestment into and out ofthe region and will creategrowth for the benefit of theUAE and the wider region.”4Wha t d o es the D I F CHis Highness Sheikh Mohammedbin Rashid Al Maktoum VicePresident and Prime Minister of theUAE and Ruler of Dubai.o f f er ?The DIFC offers financial institutions and other companies operating withinit a number of important benefits which include: Access to regional wealth and investment opportunities; 100 percent foreign ownership; A zero percent tax rate on income or profits (guaranteed for a periodof 50 years); A wide network of double taxation treaties available to UAE incorporated entities; A dollar denominated environment; No exchange controls (free capital convertibility); A transparent operating environment with high standards of rules andregulations; Strict supervision and enforcement of money laundering laws; An international stock exchange with primary and secondary listingsof both equity and debt instruments;

Introduction to the DIFC Ultra modern office accommodation, business continuity facilities,state-of-the-art technical support and data protection facilities; A one-stop shop service for visas, work permits and other relatedrequirements; An international legal system based on the Common Law of England &Wales and an independent common law judicial system; Capital structuring flexibility; The availability of a skilled labour force and highly trained professionals;and Exemption from the UAE Federal civil and commercial lawsH o wis the D I F Cma d e up?The DIFC has three independent bodies:1.the DIFC Authority (DIFCA);2.the Dubai Financial Services Authority (DFSA); and3.the Dispute Resolution Authority (inclusive of DIFC Courts, DIFCArbitration Centre, Academy of Law and Wills & Probate Registry).What are the general areas of financial activity in theD I F C ?Banks2.Insurance & Reinsurance3.Wealth & Asset Management4.Brokerage & Capital Markets5.Professional Service Providers6.Corporate Offices7.RetailersW1.ha t a r e the ty pes o f entities in the D I F C ?The following activities are deemed to fall within the ambit of providinga “Financial Service” and hence are regulated by the DFSA:5

Chapter One6 Accepting Deposits Providing Credit Providing Money Services Dealing in Investments as Principal Dealing in Investments as Agent Arranging Deals in Investments Managing Assets Advising on Financial Products Managing a Collective Investment Fund Providing Custody Arranging Custody Effecting Contracts of Insurance Carrying out Contracts of Insurance Operating an Exchange Operating a Clearing House Insurance Intermediation Insurance Management Managing a Profit Sharing Investment Account Operating an Alternative Trading System Providing Trust Services Providing Fund Administration Acting as the Trustee of a Fund Operating a Representative Office Operating a Credit Rating Agency Arranging Credit and Advising on Credit Operating a Crowdfunding PlatformAuthorised FirmsAuthorised Firms, once authorised are subject to the laws and regulationsof the DIFC and the DFSA. The DFSA Rulebooks provide a framework for

Introduction to the DIFCthe regulation, supervision and conduct of business of these entities.Authorised Market InstitutionsAuthorised Market Institutions are authorised to operate an exchange and/or clearing house in or from the DIFC. NASDAQ Dubai has a license fromthe DFSA to operate an exchange and a clearing house. All Applicantswishing to participate as an Authorised Market Institution must do so inaccordance with the Authorised Market Institution Rules (AMI Rules).Designated Non-Financial Business or ProfessionThe following activities are deemed to fall within the ambit of a DesignatedNon-Financial Business or Profession (DNFBP) in the DIFC: Real estate developers and agents who carry out transactions withcustomers involving the buying or selling of real property; Dealers in precious metals or precious stones; Dealers a dealer in any saleable item of a price equal to or greater thanUS 15,000; Law firm, notary firm, other independent legal business, accountingfirm, audit firm and insolvency firms; Company service providers, (e.g. who set up companies or providecorporate services including acting as a director, secretary or providinga registered office); and a Single Family Office.Each person or legal entity providing these services in or from the DIFCis required to be duly authorised as a DNFBP to provide these services.Non-Regulated EntitiesNon-Regulated Entities in the DIFC are those which have business activitiesthat do not fall under one of the regulated financial services and do notcarry out any DNFBP or Registered Auditor services. Such entities areprimarily companies or partnerships that provide outsourcing, businessprocessing and other ancillary activities for the DIFC entities. Examplesof Non-Regulated Entities in the DIFC include restaurants, recruitmentagencies, back office administration services and similar. Setting up aNon-Regulated Entity in the DIFC is a less complex process than settingup a regulated entity as it does not involve regulation by the DFSA.7

Chapter OneSpecial Purpose CompaniesSpecial Purpose Companies (SPC) are non-regulated companiesperforming a specific activity, that is, a company incorporated in theDIFC pursuant to the DIFC’s SPC Regulations. SPCs can only undertake‘Exempt Activities’ as defined in the DIFC’s SPC Regulations.Wha t a r e the l ega lentities ?r es tr ic tio nso n D F SAr egul a tedUAE and DIFC laws and regulations impose the following restrictions onDIFC Licensees:1.2.3.84.5.6.they may offer products or services to Professional Clients (asdefined in the DFSA Rulebook) only, unless they obtain a Retail Clientendorsement on their license;insurance activities are restricted to insurance contracts in relationto non-UAE risks (although DIFC risks may be insured) and to reinsurance;UAE Federal laws (Criminal and Penal laws) will apply in the DIFC.UAE Federal Civil and Commercial Laws do not apply in the DIFC;they may not take deposits from the State’s markets or deal in UAEDirhams;they are obliged to ensure that certain mandatory positions arefilled, namely; Senior Executive Officer (resident), Finance Officer andCompliance and Money Laundering Reporting Officer (resident); andall DIFC licensed entities, whether regulated or not must have officesin the DIFC.H o w is s etting up in the D I F Cin D ub a i?d if f er ent f r o ms etting upOne key difference between setting up in the DIFC as opposed to Dubai isthat entities undertaking financial services in the DIFC will not be subjectto regulation by the UAE’s financial services regulators. Although pleasenote they are subject to UAE Federal Laws on Anti Money Laundering andterrorist financing, as discussed further in Chapter 8.The basic principle for setting up anywhere in the UAE (other than infree zone areas) is that entities setting up must have at least 51% of thecompany’s shares owned by UAE national(s). Therefore, in principle, itis not possible for international companies to carry out their trading orservice activities in the UAE without local participation.

Introduction to the DIFCThe DIFC however allows for the establishment of 100% foreign ownedcompanies, whether as a branch of an already existing licensed andregulated financial institution, or as a subsidiary of an already existingforeign company/partnership, or as a start-up company/partnershipincorporated within the DIFC.C a n a n A utho r is ed F ir mo per a te f r o mw ithin the D I F Cb ut ha v e c us to m er s o uts id e the pr em is es ?A firm’s customers may be based locally, regionally and internationally.However, a firm may not engage in any DIFC prohibited financial activitiesirrespective of where its customers are based.Wha t is the L ega l a ndR egul a to r y F r a mew o r k ?DIFC Law is able to apply in the DIFC notwithstanding any UAE FederalLaw on civil or commercial matters. DIFC Law No. 3 of 2004 (the Law onthe Application of Civil and Commercial Laws in the DIFC) provides thatthe rights and liabilities between persons in any civil or commercial matterare to be determined according to the laws for the time being in force in theJurisdiction chosen in accordance with the following hierarchy:1.The DIFC Law or any other law in force in the DIFC so far as there is aregulatory content; failing which2.The law of any jurisdiction other than that of the DIFC expresslychosen by any DIFC Law; failing which3.The laws of a jurisdiction as agreed between all the relevant partiesconcerned in the particular matter; failing which4.The laws of any jurisdiction which appears to the Court or Arbitratorto be the one most closely related to the facts of and the personsconcerned in the matter; failing which5.The laws of England and Wales.9

Chapter One10

Chapter TwoThe Structure of the DIFC

Chapter Two12T he Str uc tur e o f the D I F CThere are several key organisations within the DIFC which enable it tofunction as a self-contained financial centre based on internationalstandards:DIFC PRESIDENTDIFC GOVERNORHIGHER BOARDDFSADIFCDRAWorld class regulatoryframework moduled oninternationally acceptedstandardsProvide independent legalframework and world classbusiness infrastructure andservicesApplying internationalstandards of justicewithin the centreAuthorityTHREE INDEPENDENT BODIESSetting Up in DIFC.indd 1211/2/17 11:33 AM

The Structure of the DIFCT he k ey o r ga nis a tio ns in the D I F CDIFC AuthorityThe key role of the DIFC Authority is to develop an overall strategy andprovide direction and supervision to the Centre. The DIFCA, created byDubai Law No 9 of 2004, is also responsible for:1.attracting licensees to operate in the DIFC;2.incorporating and registering companies in the DIFC;3.developing laws relating to non-financial services in the DIFC; and4.business development and marketing/public relations.Dispute Resolution Authority (DRA)Established in 2014, the DRA administers justice and legal excellencewithin the DIFC. The DRA currently incorporates four divisions:DIFC CourtsDubai’s established English-language, commercial common law judicialsystem.DIFC Wills and Probate RegistryThe first Common Law, English language wills and probate service fornon-Muslims in the Middle East.Academy of LawAn independent entity that provides quality legal education and support tothe UAE legal community.Dubai Arbitration InstituteDubai Financial Services Authority (DFSA)The DFSA is the independent regulator of financial and designated nonfinancial business or professions conducted in or from the DIFC. TheDFSA has set uncompromisingly high standards in creating a regulatoryand legal framework built on the best practices of leading jurisdictionsworldwide. This robust and flexible regulatory framework is underpinnedby the DFSA’s guiding principles: integrity, transparency and efficiency.The Dubai Financial Services Authority (D

When the Dubai International Financial Centre (DIFC) launched in 2004, Dubai – supported by its thriving trade, aviation and tourism sectors – had begun to establish its place on the world map. Today, with over a decade of experience behind us, the DIFC is well-positioned

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