A fund company is a legal entity used to register an investment fund beneath its name. Such a business structure is created to increase the capital investors own by investing it in the country’s stock exchanges and promising projects. The total money is used for this purpose, but each investor owns the money he contributed. The United Arab Emirates is the largest center of foreign direct investment in the Middle East, and registering a fund company is one of the ways to start investing in this country.
General Scheme of the Fund Company Operation
To carry out its functions, the fund company uses the following work scheme:
- Draws up a prospectus — a unique document that sets out the goals and conditions of investment.
- Attracts investors by offering shares in an investment fund. In this case, the offer can be public or private.
- Appoints an asset manager — this must be a qualified specialist or a legal entity that has received a license and has licensed specialists on its staff. In addition to obtaining permits from the regulator in its jurisdiction, the manager or management company must implement anti-money laundering protocols.
- Appoints an auditor recognized by the regulator and an authorized custodian of the fund’s assets (independent custodian).
- Distributes profits among investors.
Advantages of a Fund Company
As a type of investment fund operation, a fund company offers investors numerous significant advantages:
- The opportunity to preserve and increase your capital since the profit from investments most often exceeds the interest on bank deposits.
- Reducing the risk of financial losses due to licensed specialists’ professional management.
- Investments are available not only for large and medium-sized but also for retail investors. For example, in public funds, there are no restrictions on the minimum subscription, the number of investors is not limited, and you can become a shareholder of an exempt investment fund by investing in a subscription from $50 thousand.
- Low costs for asset management. The price of services for an investment fund manager is significantly lower per investor than for a personal trustee.
- Strict supervision of the fund’s activities by the financial regulator.
Weaknesses of Fund Companies
The disadvantages of investment funds presented on the UAE market by fund companies include the following:
- No income guarantee — when the stock market declines, even shares of the most successful companies may fall in price. As a result, shares become cheaper, and investors may receive losses instead of profits.
- Inability to insure investments because the deposit insurance system does not cover them.
- There is a need to pay a fund manager for the services even under the failing investments.
Every investor should understand these risks. Therefore, when registering a fund company in the UAE, including “guaranteed” or “protected” in the name is prohibited.
Types of Fund Companies
An investment fund can be created as a Free Zone Company. At the same time, you can register a fund company only in Dubai and Abu Dhabi, where the following free economic zones are available:
- DIFS — Dubai International Financial Center. The Financial Services Authority (DFSA) supervises the funds’ activities in this case.
- ADGM — Abu Dhabi Global Market, with internal regulator FSRA (Financial Services Regulatory Authority).
To open a fund company in the UAE, you can choose one of the following organizational and legal forms:
- LLC-company — The company director is the fund manager.
- Partnership — The investors are partners whose liability is limited by the size of the share. The management company is a general partner with unlimited liability;
- Trust is created under a trust management agreement between the fund’s founder and the trustee.
Fund Company Income
An investment fund represented in the UAE by a fund company receives income through the following sources:
- Dividends on shares, bonds, and other securities purchased with the fund’s money.
- Increasing the value of acquired assets.
- Market demand for the investment fund.
The fund’s founder can act as the owner of up to 30% of the shares. The fund manager’s services are usually included in the price of the shares in the form of interest.
Advantages of Registering a Fund Company in the Emirates
The UAE has created ideal conditions for investment, including foreign investors. The main benefits of opening an investment fund company in the Emirates are the following:
- Support for investment activities by the state, the availability of special free zones where the most extensive stock and financial domicile has been created.
- Financial stability and sustainable growth of the state’s economy.
- The opportunity to open a fund company in the UAE, owned 100% by a foreign founder.
- Tax-free regime — no taxes on capital gains, dividends, and VAT. A fund company is also exempt from paying the new corporate income tax introduced from June 2023, not only because it is registered in a free zone but also because the ownership of securities and services for managing funds and investments are classified as qualified activities, which is not subject to this tax.
- The opportunity to obtain UAE tax resident status, which avoids double taxation.
- Free movement of funds, no restrictions on capital repatriation, and no government exchange controls.
- Complete confidentiality of data about beneficiaries, protection from automatic exchange of information with tax authorities according to the CRS standard.
- A wide range of licensing options — licenses to operate an investment fund and conduct transactions with securities, investment consulting, investments in real estate, and related structures.
How to Open a Fund Company in the UAE
Creating a fund company in the Emirates involves the following procedure:
- Choosing the place of registration and the organizational and legal form representing the investment fund.
- Obtaining preliminary approval to open the fund and register the name with the Department of Economic Development (DED).
- Preparation of documentation — the fund Charter and prospectus, partnership agreement for investors, documents containing identification and contact information about the company founders, and a declaration confirming payment of the minimum authorized capital of 5 million dirhams (AED).
- The hiring of a fund asset manager.
- Obtaining licenses for fund activities, manager and other employees licensing by the SCA, DFSA, and FSRA requirements, depending on the registration place.
- Registration of a fund company.
- Opening a corporate bank account.
Cost of Setting up a Fund Company
The cost of registering a stock company depends on the following factors:
- Type of legal entity and place of registration.
- Type of investment fund (public, exempted, or qualified investor fund).
- The number of licenses you need to obtain.
- Office size.
- Number of resident visas for company employees.
You can find the exact cost of registering a fund company in the UAE for your investment fund in Dynasty Business Adviser after consultation with a specialist from our company.
Practical Tips and Advice
Registration of an investment fund in the UAE is a complex process that requires understanding the peculiarities of the functioning of various funds in the Emirates and a good knowledge of the country’s legislation in investment and work in the stock market. Entrust the creation of a fund company to the Dynasty Business Adviser professionals. They help to prevent you from endless flights to the UAE and go to authorities to resolve issues that arise during the registration process with the regulator and other government bodies. We will help you open a fund company with your minimal participation and in the shortest possible time!
