15 December, 2023

Guide to the Crowdfunding License in the DIFC

crowdfunding license in difc

What is Crowdfunding?

Crowdfunding is a method of raising funds for a specific cause or project by soliciting small contributions from a large number of people, typically over a short period, often online and through social networks. It can be used for various purposes, such as charitable causes, creative projects, business startups, or personal expenses. There are different types of crowdfunding, including donation-based, investment-based, and rewards-based. It allows individuals and businesses to access capital from a wide pool of investors, and it has become increasingly popular due to its accessibility and potential to cultivate a community around a project or business

 

DIFC Property Crowdfunding License

The DIFC (Dubai International Financial Centre) offers a Property Crowdfunding License through the DFSA (Dubai Financial Services Authority). This license allows the operation of a Property Crowdfunding Platform, where residential properties can be listed for investment. However, commercial real estate and off-plan properties are not eligible for listing. The capital requirements for this license are specific, with a maximum value of US$ 5 million for a single property listing. The DFSA also regulates other types of crowdfunding, such as investment-based and loan-based crowdfunding

 

DIFC Capital requirements

The DIFC (Dubai International Financial Centre) has specific capital requirements for its Property Crowdfunding License. Here are the key points:

  • The base capital requirement for a Category 4 Crowdfunding Business license is US$ 140,000.
  • The actual capital required will depend on the nature, quantum of business, and forecasted annual expenditure of the proposed firm.
  • There are three components of capital: base capital, risk-based capital, and expense-based capital. The higher of the three is set to be the capital requirement.
  • The DFSA (Dubai Financial Services Authority) imposes additional requirements to ensure retail client protection, such as limiting the amount retail investors can contribute in a single calendar year.
  • The DIFC’s Property Crowdfunding License only covers residential properties, and commercial real estate and off-plan properties are not eligible for listing.
  • All listed properties are required to have clear title deeds, and the maximum value of a single property listing is US$ 5 million.
  • The DFSA regulates other types of crowdfunding, such as investment-based and loan-based crowdfunding.

 

Can DIFC firms service clients outside the centre, and in the greater UAE?

DIFC firms can service clients outside the center and in the greater UAE, as long as they primarily provide services and products from their registered office in the DIFC area. The revised law confirms that DIFC-registered entities can supply services and products outside the DIFC, as long as they are primarily provided out of the firm’s premises in the DIFC area. Marketing and promotional activities are also allowed outside the center. However, there may be additional rules to follow when actively marketing funds from the DIFC

 

Dubai Financial Services Authority (DFSA):

The Dubai Financial Services Authority (DFSA) is the independent regulator of financial services conducted in or from the DIFC, a purpose-built financial free zone in Dubai, UAE

. Its regulatory mandate includes asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange, and an international commodities derivatives exchange. The DFSA also supervises and enforces anti-money laundering (AML) and counter-terrorist financing (CTF) requirements

 

Why setup a financial services firm in the DIFC?

Setting up a financial services firm in the DIFC offers several advantages, including: Opportunities in the Middle East, Africa, and South Asia (MEASA) region, with strong economic and demographic growth

  • A supportive environment for financial and non-financial businesses
  • A comprehensive technology ecosystem, with cost-effective licensing solutions, fit-for-purpose regulation, innovative accelerator programs, and funding for growth-stage start-ups
  • Access to a large client base and the ability to benefit from the DIFC’s legal and regulatory framework
  • Lower incorporation and licensing fees for Prescribed Companies compared to other DIFC Private Companies
  • Flexibility in providing services and products outside the DIFC area, as long as they are primarily provided out of the firm’s premises in the DIFC area
  • A pivotal and sector-agnostic business hub, available to all start-ups, entrepreneurs, and technology firm

 

Here are some specific advantages of establishing a financial services firm in the Dubai International Financial Centre (DIFC):

  • Legal and Regulatory Framework: The DIFC’s legal framework supports cross-border activities, allows 100% foreign ownership, and has no restrictions on capital repatriation or foreign employees
  • Tax Efficiencies: DIFC offers zero tax for 50 years on profits, capital, or assets, and zero tax on personal income
  • Confidence: The DIFC is regulated by the highly regarded Dubai Financial Services Authority (DFSA), which maintains an independent, English-speaking, common law judicial system
  • Ecosystem: The DIFC provides a diverse environment for financial and non-financial businesses, including regulated professional services companies and innovative start-ups
  • Focus Areas: The DIFC’s core business revolves around regulated activities in banking, with a broader base of economic activity, such as law and other non-regulated services
  • Opportunities: The DIFC offers access to a large client base and the ability to benefit from the DIFC’s legal and regulatory framework
  • Technology Ecosystem: The DIFC has a comprehensive technology ecosystem, including cost-effective licensing solutions, fit-for-purpose regulation, innovative accelerator programs, and funding for growth-stage start-ups

 

How does the DIFC operate?

The Dubai International Financial Centre (DIFC) operates as a leading financial hub in the region, offering a supportive business environment for financial and non-financial businesses. Key aspects of how the DIFC operates include:

Comprehensive legal and regulatory framework: The DIFC has a robust and clear regulatory system, with the Dubai Financial Services Authority (DFSA) as its independent regulator

  • Common Law framework: The DIFC adopts a Common Law framework, providing a familiar environment for international businesses
  • Independent regulator and judiciary: The DIFC has an independent regulator and an independent English-speaking Common Law judiciary, ensuring a reliable legal system
  • Streamlined setup process: The DIFC offers a streamlined business setup process, making it easier for companies to establish operations in the region
  • Diverse office spaces: The DIFC provides world-class infrastructure and diverse office spaces for businesses, allowing them to grow and succeed
  • FinTech and innovation: The DIFC supports the growth of FinTech and innovative businesses, offering various FinTech licenses and accelerator programs
  • Strong network of service providers: The DIFC has a robust ecosystem of service providers, including consultancies, audit and accounting firms, and corporate service providers
  • Wide range of financial services activities: The DIFC allows various financial services activities, such as investment banking, private banking, fund management, asset management, brokerage, and investment advisory services

 

What is the role of the DFSA?

The Dubai Financial Services Authority (DFSA) is the independent regulator of financial services conducted in or from the DIFC, a purpose-built financial free zone in Dubai, UAE. Its regulatory mandate includes asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange, and an international commodities derivatives exchange. The DFSA’s mission is to develop, administer, and enforce world-class regulation of financial services within the DIFC, and its regulatory approach is risk-based to avoid unnecessary regulatory burden while expecting high standards of ethical conduct and integrity from the DFSA and its people

 

The DIFC Application Process

The DIFC (Dubai International Financial Centre) application process involves the following steps:

Identifying the business activity: The DIFC provides a non-retail activities guide that identifies whether a proposed business activity can be registered and licensed in the DIFC

Regulatory business plan: The applicant must submit a regulatory business plan to the DFSA (Dubai Financial Services Authority), outlining the proposed business activities, organizational structure, and risk management

Formal submission to the DFSA: The applicant must submit a formal application to the DFSA, including the regulatory business plan and other supporting documents

Detailed review process: The DFSA conducts a detailed review of the application, which may involve additional information requests and meetings with the applicant

Issuance of the DIFC Commercial License: If the application is approved, the DIFC Registrar of Companies issues the DIFC Commercial License, subject to the completion of conditions stated in the IPA (Incorporation and Participation Agreement)

Bank account opening: The applicant can open a bank account in the DIFC to conduct business

The DIFC offers a supportive business environment, streamlined setup process, and world-class infrastructure for financial and non-financial businesses