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Dubai International Financial Centre (DIFC) is among the world’s top onshore financial hubs. It offers a dependable framework for businesses looking to capitalise on the fast-growing financial markets of the Middle East, Africa, and South Asia (MEASA). Notably, DIFC’s common law environment, tax efficiencies, and internationally recognised regulator, the Dubai Financial Services Authority (DFSA), combine to create ideal conditions for fund managers. Within this ecosystem, the Category 3C licence stands out for those aiming to operate collective investment funds out of DIFC. This includes structures like Exempt Funds and Qualified Investor Funds (QIFs).
This guide provides an in-depth look at the Category 3C DIFC fund manager licence. It summarises the scope of activities it permits, the capital required, the appointments the DFSA typically demands, and the broader application process for establishing a regulated fund management firm. It also discusses how Category 3C fund managers can market to clients outside DIFC, the specialised approach to virtual assets, and the approximate costs associated with launching in this jurisdiction. Whether the ambition is to relocate to Dubai or set up a more conventional investment offering, understanding the Category 3C DIFC fund manager licence is vital for accessing this leading financial centre.
Why start a fund manager in DIFC
DIFC is a hub for global finance in the region. It offers integrated infrastructure with direct access to financial service activities and a supportive environment that welcomes innovation. Not only is it well regarded internationally, but it also hosts the largest fund domicile in the area. This is further complemented by a robust network of professional services that enrich local deal-making. For start-ups, the fintech focus provides an additional advantage. Firms can test ideas, refine products, and pitch to prospective investors under the aegis of a well-established regulator.
Key highlights include:
- A legal framework that supports cross-border structuring, letting fund managers locate their offices near the markets or assets they manage
- No limits on foreign employees or shareholders, granting flexibility in assembling a global team
- Zero personal or corporate tax, cutting overheads for fund managers and reducing constraints on expansions or relocations
- An environment that nurtures professional collaboration, with top-tier law and audit firms operating close at hand
Understanding Category 3C DIFC fund manager licence
Firms planning to manage funds from DIFC need a Category 3C licence if their principal aim is “operating a collective investment fund.” Under DFSA definitions, operating a collective investment fund means being legally accountable to the unitholders, overseeing the property, and managing or winding up the fund. It may also incorporate managing assets, fund administration, dealing, arranging deals, or providing custody if those activities are part of standard fund management.
Category 3C applies to fund managers dealing with Exempt Funds and Qualified Investor Funds. The DFSA provides a faster-track process for these structures, recognising that they target professional clients rather than the general public. The possibility also exists to manage foreign funds, meaning Category 3C licensees can handle cross-border offerings, not merely local vehicles. If the manager, however, intends to engage in discretionary portfolio services separate from the fund, a more comprehensive licence may be necessary.
Exempt Funds and Qualified Investor Funds
Both Exempt Funds and Qualified Investor Funds are open only to professional clients as defined by DIFC rules. These structures rely on private placements rather than public marketing, and each imposes minimum subscription thresholds, ensuring their participants are experienced, sophisticated investors.
Exempt Funds
- Minimum subscription of 50,000 US dollars
- Units offered only by private placement
- Restricted to professional clients
Qualified Investor Funds
- Minimum subscription of 500,000 US dollars
- Units again offered solely by private placement
- Also limited to professional clients
Such private placements reflect the DFSA’s desire to ensure that only investors with sufficient knowledge and capacity take part in higher-risk or less regulated fund structures. The lower thresholds for Exempt Funds make them more accessible than QIFs, which enforce a half-million-dollar minimum. Both vehicles typically enjoy lighter touch regulation than retail funds, letting the manager expedite launch times.
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Collective investment fund activities
A Category 3C fund manager is primarily authorised to “operate a collective investment fund,” encompassing:
- Managing the fund’s property
- Being accountable to unitholders under the fund’s constitution
- Performing tasks that might otherwise be considered separate services, such as dealing as an agent or providing custody, insofar as they form part of the overall fund management
This arrangement streamlines the licensing process, reducing the need for multiple separate permissions. In practice, it allows managers to take on daily functions like distributing units, supervising investment strategies, and ensuring compliance with the fund’s constitution. If managers want to add discretionary portfolio management services or handle other activities outside standard fund operations, they generally need additional licensing or endorsements beyond Category 3C.
Required appointments
As with other categories under DFSA regulation, a Category 3C firm must be adequately staffed to reflect the scope and nature of the funds it will manage. The DFSA normally expects:
- A board of directors with independent members and a non-executive chair to enhance governance
- A senior executive officer (SEO) with substantial banking or asset management experience (often over 10–15 years) who resides in the UAE
- A finance officer (FO) who may, if the structure is part of a larger group, be based at the parent entity rather than the UAE, subject to DFSA approval
- A risk officer who can also be a group-level appointee, though large-scale or more complex operations often have an in-house risk function
- A compliance officer (CO) and a money-laundering reporting officer (MLRO), each typically with a decade of regulatory or compliance experience. The same person can combine these roles if the DFSA permits, but they must reside in the UAE.
- An internal auditor, generally outsourced to a recognised professional firm, to review processes and ensure robust internal checks
- An external auditor selected from a DFSA-approved list (currently around 15 firms)
Independent directors, suitably qualified compliance officers, and thorough internal audits help safeguard investors’ interests. Where the manager is part of a larger international group, certain positions can be shared or retained outside the UAE, though the DFSA insists on local presence for top roles like SEO, compliance, and AML, reflecting the regulatory emphasis on accountability.
"This framework highlights that the DFSA regards fund management as a complex, risk-bearing activity"
Capital requirements
The base capital requirement for a Category 3C DIFC Fund Manager is 70,000 US dollars if the firm is managing only Exempt or Qualified Investor Funds. However, the actual figure might be higher in practice, guided by three components:
- Base capital:
A standard threshold the DFSA defines. - Risk-based capital:
Adjusts for any exposures that might arise from unusual or intricate fund structures. - Expense-based capital:
Calculates a portion of projected annual expenditure. For most fund management firms, this is typically set at 13/52 of annual expenses.
The regulator sets whichever is higher among these as your required capital. Firms that carry minimal operational overhead and do not plan complex or risky strategies may settle near the base level, whereas those with bigger plans or more aggressive strategies might see the capital figure climb. Some waivers can be considered for DIFC branch offices of regulated foreign entities, assuming the head office is in a recognised regulatory jurisdiction that offers robust oversight.
Fast-track process and fund structures
The DFSA streamlines applications for Category 3C fund managers, acknowledging the narrower investor base and professional status of participants in Exempt and Qualified Investor Funds. Managers can handle domestic DIFC-based funds or foreign-domiciled ones. If, however, they also wish to provide discretionary management for individual portfolios, the scope widens, and a more extensive DFSA process often follows.
From the manager’s perspective, the main draw of Category 3C is the ability to operate a collective investment fund in or out of DIFC with a professional client focus. Many prefer the Exempt Fund route, with a 50,000 US dollar minimum subscription, if they want simpler structures and less capital injection from each investor. Those aiming at higher-end or institutional investors might choose QIF, enforcing a half-million-dollar threshold to ensure participants are robustly capitalised.
Service scope beyond DIFC
Sheikh Mohammed bin Rashid Al Maktoum’s Law No. (5) of 2021 clarifies that DIFC-registered entities can supply services and products outside the centre, provided these services primarily come from DIFC-based premises. This includes marketing or promotional activities across Dubai and the UAE. For fund managers specifically, marketing funds outside DIFC might be subject to a passporting regime, where the manager registers the fund for distribution in the UAE or ADGM. It opens the door for a more extensive client base than the physical boundaries of DIFC alone, supporting expansions and cross-border deals without forcing a separate onshore entity.
Virtual assets and the DFSA’s approach
The regulator’s new guidelines around digital or crypto tokens continue to evolve. This regime covers a range of instruments, from security tokens to stablecoins and utility tokens. Existing DFSA frameworks for security tokens already shape how tokenised securities are regulated. The second phase includes crypto tokens, exchange tokens, and stablecoins. Any fund manager that wishes to advise on or manage crypto-assets needs endorsements beyond a standard Category 3C licence. This might mean adjusting capital or AML processes to match the unique risk factors of distributed ledger technology (DLT). For fund managers keen on bridging conventional funds with digital assets, the regulatory horizon looks promising but requires close monitoring.
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Application process
A DIFC Category 3C fund manager follows a structured application route, similar to other regulated licences, but often smoother thanks to the professional-only nature of the funds:
Initial introductions
You discuss your proposal with the DFSA and DIFC, providing a short-form regulatory business plan and financial projections for an initial reading.
Comprehensive application
After incorporating the DFSA’s feedback, you compile a fuller submission including operational manuals, AML policies, data protection measures, and details on the firm’s directors, shareholders, or group structure.
Detailed review
Within a week or two, the DFSA usually acknowledges the application. A thorough review follows, taking four to six weeks for the regulator to examine every aspect, from capital adequacy to the backgrounds of senior staff. The DFSA interviews the senior executive officer, finance officer, and compliance or AML leads.
In-principle approval
Once satisfied, the DFSA provides a provisional nod. You then form the DIFC legal entity, open a bank account, deposit share capital, and finalise your choice of external auditor and professional indemnity insurance.
Final licence
Upon meeting all conditions, the DFSA issues your financial service permissions for fund management. At that point, you can start your fund operations officially.
This relatively fast turnaround is feasible because Exempt and Qualified Investor Funds target professional clients, who typically warrant less stringent retail protection. However, expansions into discretionary portfolio services or unusual product lines might slow the process or prompt additional DFSA checks.
Approximate costs of establishing a Category 3C fund manager
Starting a DIFC-regulated fund manager means covering DFSA fees, ROC incorporation, data protection filings, office space, and visas. Whilst actual sums can vary depending on your scale, the following are typical:
DFSA
Application fees for a fund manager licence can start at around 5,000 US dollars, with annual fees also around 5,000 US dollars. These fees depend on the activities requested and are prorated from the day you receive permissions. This is less in comparison to DFSA fees for a DIFC Category 3A licence.
Registrar of companies
Reserving a company name costs about 800 US dollars, while incorporating a private company limited by shares stands at 8,000 US dollars. The commercial licence at incorporation typically costs 12,000 US dollars. There may be special discounts for venture capital or fintech-related funds.
Data protection
Registering a new entity triggers a 1,250 US dollar fee, with an annual renewal of 500 US dollars.
Office space
Each DIFC firm must lease a physical office. The business centre’s two-desk spaces can begin at around 35,000 US dollars, while fitted offices might cost 55 US dollars per square foot. Alternative buildings near the centre often charge from 32,000 US dollars per year for smaller setups.
Visas
Establishment card applications sit at 630 US dollars, and each visa can cost around 1,500 US dollars plus deposits (about 682 US dollars per visa). Visas are linked to available office space, often at a rate of one visa per 80 square feet.
These estimates help build a general budget for your Category 3C operation. Actual expenses will vary with each firm’s scale, staff count, and choice of premises.
"Exempt Funds often work well for smaller groups of sophisticated investors, while QIFs look to institutional or higher net worth participation."
Operating funds: Exempt vs. Qualified Investor Funds
As a Category 3C manager, you can operate Exempt Funds or Qualified Investor Funds. Both structures cater exclusively to professional clients. However, Exempt Funds require a lower minimum subscription (50,000 US dollars), whereas QIFs demand 500,000 US dollars. Both rely on private placements, ensuring they are not marketed to the public at large. This distinction can influence how you position your fund’s strategy and investor pipeline.
Serving clients outside DIFC
Just like other DIFC-registered entities, Category 3C managers can offer services outside the physical boundaries of the centre. Marketing or promotional campaigns may be conducted across Dubai or further afield, subject to abiding by relevant rules on fund distribution. In many cases, a passporting regime exists for managers wanting to sell or list their DIFC funds in the UAE or ADGM, bridging more conventional structures with the region’s well-established investor base. For a manager targeting clients in various jurisdictions, this cross-centre approach can significantly broaden scope and help build momentum for newly launched funds.
- DIFC’s Law No. (5) of 2021 clarifies that DIFC-registered firms can deliver services outside the centre if the main activity remains in DIFC premises. Passporting mechanisms allow cross-jurisdiction fund marketing (UAE, ADGM). This flexibility expands a fund manager’s client base without forcing separate onshore licences.
- Setting up a Category 3C entity entails DFSA fees (from 5,000 US dollars for application and licensing), ROC costs (incorporation fees, annual commercial licence), data protection registration, a mandatory physical office lease, and visa fees. The overall budget depends on office size, staff count, and business complexity.
- Recommended staff appointments include a senior executive officer, finance officer, risk officer, compliance officer, and MLRO. Independent directors and a non-executive chair on the board reinforce governance. Internal and external auditors check internal processes and financial statements, respectively.
