The Dubai International Financial Centre (DIFC) has a structured approach to managing various types of funds. These funds can either be domestic (established within the DIFC) or foreign (established outside the DIFC).

Below is an overview of these fund types and the relevant fund managers:

1. Domestic Fund

A domestic fund is one that is established or domiciled within the DIFC. The types of funds that can be set up in the DIFC include:

• Public Fund (may be offered to retail clients and thus, heavily regulated)
• Exempt Fund (only for professional clients)
• Qualified Investor Fund (only for professional clients)

These funds may be managed by either a domestic fund manager or an external fund manager.

2. Foreign Fund

A foreign fund is established or domiciled outside the DIFC. It is only open to investors who meet the Professional Client test. A foreign fund can be marketed within the DIFC by a domestic fund manager with a Category 4 license (which covers activities such as advising on financial products or arranging deals in investments).

3. Fund Managers in the DIFC

There are two types of fund managers in the DIFC:

• Domestic Fund Manager
• External Fund Manager

3.1. Domestic Fund Manager

A domestic fund manager is permitted to establish and manage funds both within the DIFC and in other jurisdictions outside of the DIFC.

If a domestic fund manager intends to manage foreign funds, they must:

Notify the Dubai Financial Services Authority (DFSA) about the regulatory requirements applicable to the foreign fund and the jurisdiction in which the foreign fund is domiciled.
Implement and maintain adequate systems and controls to ensure compliance with the applicable regulatory requirements.

3.2. External Fund Manager

An external fund manager from a recognised jurisdiction can manage funds within the DIFC (except credit funds) without the need to establish a place of business in the DIFC. However, certain conditions apply:

• The external fund manager must be a body corporate.
• The external fund manager must operate from a recognised jurisdiction or be assessed by the DFSA as offering an adequate level of regulation.
• The external fund manager must submit to the laws of the DIFC and be subject to the jurisdiction of DIFC courts regarding the domestic funds they manage.
• The external fund manager must appoint a DFSA-licensed fund administrator or trustee as a local agent in the DIFC to work with the DFSA and unitholders.

Documents Required for External Fund Managers: The external fund manager will need to submit the following documents to the DFSA:

• A copy of its regulatory license in the home jurisdiction.
• A letter of good standing from its financial services regulator.
• The agreement with the DFSA-licensed fund administrator or trustee.
• A completed AUT-EFM External Fund Manager Form.

If the external fund manager is not located and regulated in a recognised jurisdiction, a gap analysis will have to be conducted of the home jurisdiction against that of the DFSA.

Additionally, the following supporting documents will have to be kept ready for inspection:

• Compliance manual
• Anti-money laundering procedures
• Compliance monitoring programme
• Risk Management policies.

This structure ensures that the DIFC maintains its position as a regulated financial hub while allowing flexibility for both domestic and foreign funds to operate efficiently under a clear set of regulatory standards.

KBH and its team of lawyers can advise you on a range of formation and compliance issues related to setting up and managing funds, helping to mitigate long-term risks.

Should you have any questions on the above or require any further information, please contact the following individuals:

• DK Singh – dk@kbh.ae
• Aparajita Chakraborty – aparajita.chakraborty@kbh.ae