Dubai: Offshore Business Sectors
Dubai International Finance Centre
In July 2003, the UAE Federal Cabinet approved a federal decree allowing the Dubai International Finance Centre (DIFC) a large degree of sovereignty. The approval of the decree, which allows for Financial Free Zones to be established in the UAE, marked a significant step forward for the Centre, which hosted a summit between the World Bank and the IMF in September. In July, 2004, the ruler of Dubai guaranteed the legal independence of the DIFC, and in September of that year, he signed a decree formally establishing the Centre.
By the end of 2012, the number of firms licensed by the Dubai Financial Services Authority (DFSA) to operate in the DIFC had reached 345, comprising 293 authorised firms, 50 ancillary service providers and two Authorised Market Institutions (Nasdaq Dubai and DME).
Asset management companies, banks, and other financial service providers which establish headquarters in the Dubai International Financial Centre (DIFC) are permitted to do business with locally-based high net worth individuals but are not allowed to enter into the retail market in Dubai.
The DIFC has a separate set of laws called the Commercial Code, comprising a comprehensive set of regulations like company law, legislation on property rights, including laws on security and collateral, title to goods and securities, commercial transactions and contracts, and insolvency.
As the regulatory authority is a 'one-stop for everything' regulator, financial institutions are granted an umbrella licence covering all services, but with separate permissions for discrete activities such as wholesale banking, asset management, insurance, re-insurance, securities underwriting, broking, dealing, corporate finance advice, investment advice, derivatives trading, etc.
The regulatory authority issued rules to prevent money laundering, requiring a licensed institution in DIFC to appoint an appropriately qualified money laundering reporting officer.
The Dubai Financial Services Authority (DFSA) has created a number of laws and amendments since 2004 which are available on the DFSA website. These include:
- Regulatory Law;
- Companies Law;
- Law on the Application of Civil and Commercial Laws in the DIFC;
- Law Relating to the application of DIFC Laws;
- Limited Liability Partnership Law;
- Contract Law;
- Insolvency Law;
- Arbitration Law;
- Data Protection Law;
- Commercial Court Law;
- General Partnership Law; and
- Markets Law.
In January 2006, The National Investor (TNI) became the first bank based in the United Arab Emirates obtain a licence to operate as an authorised firm from the Dubai International Finance Centre (DIFC).
Also in January of that year, the Dubai International Financial Centre Authority published for comment draft legislation outlining the Limited Partnership Law, and the Limited Partnership Regulations, which are aimed primarily at establishing a purpose-built vehicle for the formation and operation of fund management activities in the DIFC.
The Limited Partnership Law deals with matters such as formation and registration of a limited partnership, rights and obligations of general and limited partners, dissolution of the limited partnership and migration of limited partnerships to and from the DIFC. The regulations provide the details of the process for registration and operating a limited partnership in the DIFC.
The Limited Partnership Law follows the enactment in 2004 of the Companies Law, the General Partnership Law and the Limited Liability Partnership Law to further extend the range of the company formation offering of the DIFC in accordance with international best practices.
In April 2006, the Dubai International Financial Centre Authority announced the launch of a subsidiary called DIFC Investments (Company) LLC, which undertakes all non-public administration activities previously carried out by DIFC Authority.
This includes all commercial and other activities, such as the operation and management of any current and future subsidiaries, the development of the centre’s investment strategy and relevant policies, and any other strategic investments or alliances which will further the goals and objectives of the Dubai International Financial Centre and contribute to the fulfillment of the Centre’s vision.
In May 2006, the DIFC announced that a new Board of Directors of the DIFC Authority had been appointed. The previous Board was stepping down on schedule following its success in overseeing the creation and initial operational period of the DIFC.
In August 2006, the first hedge fund to be domiciled in the Dubai International Financial Centre (DIFC) was launched by Argent Financial Group LLP, an independent investment management company with operations in the US and Bermuda.
The Constans Crescent Investment Fund is one of the first hedge funds focused on investment opportunities in the “Crescent Belt” of Islamic countries stretching from Morocco to Pakistan, including the GCC and North Africa, and the fund primarily invests in local public equities across these markets.
In April 2007, the Dubai International Financial Centre (DIFC) held an official inauguration ceremony for the DIFC Courts, an independent judicial system which deals with matters arising from and within the DIFC, and which is expected to raise the bar of legal standards within the region.
The Real Property Law, enacted in June 2007, guarantees ownership of freehold land and buildings, and other interest in land, within the DIFC. The Law is based on the underlying principles of English common law, but also incorporates the Torrens system of land registration, well known in countries such as Australia, New Zealand, Canada and Singapore.
Under the Real Property Law, land transactions are registered in a central register administered in the DIFC. Once registered, the Law certifies them to be fully effective. Unlike some other systems of land registration, title interests registered under the Real Property Law are “indefeasible”. In practical terms, this means that persons buying real estate in the DIFC, lending on the security of real estate in the DIFC, or taking a lease of real estate in the DIFC, can be assured that their investment is backed by the full protection of the Law.
In 2008, the DIFC updated its arbitration law (DIFC arbitration law (DIFC Law No. 1 of 2008)), and proposed new revisions to its company and issued public consultations on proposed revisions to the Companied Law and Insolvency Law. New regulations that enable companies within the financial district to quickly form Special Purpose Company (SPC) structures were also announced in 2008.
In December 2012, the DIFC Authority confirmed the enactment of four new laws, the Employment Law Amendment Law, the Real Property Law Amendment Law, the Data Protection Amendment Law, and the Non-Profit Incorporated Organisation Law, by Sheikh Mohammed Bin Rashid Al Maktoum, the ruler of Dubai.
The Non Profit Incorporated Organisations Law introduces a new regime for non-profit organisations whose purpose is to support the growth and development of the financial services sector in the DIFC. Under the new legislation, non-profit organisations wanting to establish in the DIFC will have to incorporate as bodies corporate, founding members have to be residents of the UAE and they may only carry on authorised activities as defined in the Non Profit Incorporated Organisations Law.
The amendments to the Employment Law, Real Property Law and Data Protection Law seek to provide greater legal certainty by addressing a number of deficiencies and impracticalities which have been identified since the establishment of the DIFC in consultations launched in December 2011.
The four laws will come into force on December 23, 2012 and have been made available online. The Board of Directors of the DIFC Authority also made regulations under the Non Profit Incorporated Organisations Law and the Data Protection Law, which will also come into force from this date.