Skip to content 
Dubai International Financial Centre has grown into the Middle East’s principal domicile for private funds, yet not every strategy, nor every investor, requires the full regulatory weight that applies to retail products. Enter the exempt fund, a structure purpose-built for professional clients willing to commit at least fifty thousand United States dollars and knowledgeable enough to assess risk without elaborate protective layers. For advisers who trade regional sukuk, frontier equities or private-credit notes, the exempt wrapper delivers speed and cost efficiency while keeping the governance hallmarks that attract institutional allocators. The paragraphs below explain, in clear steps, how DIFC Exempt Funds operate, what permissions they need, how they differ from qualified investor and public funds, and why they often prove the best fit for mid-market strategies seeking Gulf and wider MENASA inflows.
Why exempt funds appeal to managers and investors in DIFC
Professional clients value clear disclosure, strong custody and a court system that enforces contracts, yet they disdain the delays and expenses retail safeguards impose. The DFSA’s exempt fund category squares this circle by limiting the investor pool to those who hold at least one million dollars in net financial assets, or belong to an institutional class such as banks, insurers or pension schemes. Because these clients are deemed capable of independent analysis, the regulator waives certain checks, accelerating launch time and lowering ongoing overhead.
For managers, this means a commercial licence discounted to two thousand US dollars per annum for the first two years, a DFSA application fee of ten thousand dollars rather than the twenty-five thousand typically levied for retail vehicles, and a fast-track review cycle that targets final approval within five working days once documents are complete. Keep reading to learn more about DIFC exempt funds, from costs to every other detail that’s present in the matter.
Professional-client definition and suitability testing
The DFSA divides professional clients into three segments.
- Deemed professional clients include governments, supranational bodies and financial institutions.
- Service-based professional clients are entities whose main business is investment or treasury.
- Assessed professional clients are individuals and undertakings that pass a net-assets test of one million dollars and confirm investment expertise in writing.
A manager must keep signed suitability forms on file, revisit the client’s financial position every two years and report any downgrade to the fund board within ten working days. Failure to refresh these attestations is a frequent finding during DFSA thematic reviews, so compliance procedures should calendar automated reminders six months before each anniversary.
Exempt fund versus qualified-investor fund
Both exempt and qualified-investor funds address sophisticated pools, yet key differences remain. The minimum ticket is fifty thousand dollars for an exempt unit, five hundred thousand for a qualified-investor unit. An exempt fund may offer units to up to one hundred holders, double the cap for qualified-investor vehicles. Application speed is marginally slower for exempt funds—five days instead of two—because investor protection is slightly tighter, although still lighter than retail. Cost incentives differ as well: the DFSA charges ten thousand dollars a year for exempt funds and five thousand for qualified-investor funds, reflecting the heavier governance in the former.
Legal structures available to exempt funds
The DIFC Registrar of Companies supports three primary wrappers.
- Open-ended investment company with daily, weekly or monthly liquidity, ideal for listed equities and short-duration sukuk.
- Closed-ended investment company where capital remains locked until a target date, used for property, venture and direct lending.
- General-partner limited-partner vehicle (GP-LP) which mirrors the economics of Delaware or Jersey partnerships, aligning carried interest with investor outcomes.
Promoters should match wrapper to strategy: liquid regional bond portfolios favour the open-ended model, while warehousing logistics warehouses in Jebel Ali calls for a closed-ended timetable that spans acquisition, value-add and exit.
Our working hours: Monday to Friday, 9 AM – 6 PM GMT+4
DFSA capital standards and managerial categories
A domestic manager of exempt funds falls under DIFC Category 3C and must hold base capital of seventy thousand dollars plus the greater of expense-based or risk-based capital. Firms that outsource valuation and redemption processing to an independent administrator often keep risk-based capital at a minimum. External managers regulated in the United Kingdom, Singapore or another recognised jurisdiction may operate from a DIFC branch subject to lighter equity buffers, provided they can ring-fence expense exposure attributable to Dubai.
Regulatory fast track: Five working days from file to clearance
The DFSA’s exempt-fund desk processes applications via a notification regime rather than the full authorisation required for public funds. Managers submit a private-placement memorandum, a fund constitution and a confirmation that at least one director holds a fund-management endorsement. Within five days a case officer either clears the fund or requests clarifications. Once clearance arrives, units can be offered the next day, provided subscription agreements include the professional-client acknowledgment.
Governance flexibility and oversight options
While exempt funds may add an independent oversight committee, this is not compulsory. Many boards appoint at least one non-executive director for reputational assurance and because institutional investors often refuse mandates without an independent voice. Closed-ended exempt funds can, unless stated otherwise in the constitution, forgo an external administrator, allowing the manager’s finance team to strike NAV.
"Experienced allocators usually insist on external valuation for complex real-estate or credit portfolios to prevent mark-to-model bias."
Service-provider ecosystem
Even under lighter regulation, certain roles remain vital. Custodians must safeguard assets, auditors must certify financial statements to IFRS and data-protection officers must register with the DIFC Commissioner. Compliance may reside in-house, though outsourcing to a Dubai-based boutique costs roughly thirty-five thousand dollars a year and satisfies independence criteria. Administrators charge five to ten basis points for liquid strategies, while closed-ended private-equity funds negotiate flat retainer models.
Cost matrix and start-up forecast
A typical open-ended equity exempt fund with a domestic manager forecasts the following year-one spend: ten thousand dollars DFSA application fee, ten thousand annual licence fee, two thousand discounted commercial licence, eight thousand incorporation and name reservation, twenty-three thousand rent and visas for a two-desk office, eighteen thousand legal drafting and ten thousand audit consent. Add fifteen thousand for compliance outsourcing and the initial cash requirement reaches about eighty-eight thousand dollars before marketing. A closed-ended property fund skipping administration and using a smaller office might launch for sixty-five thousand dollars.
Marketing and distribution reach
Because offerings are private, managers may contact professional clients directly but must avoid public solicitation. Websites may host password-protected data rooms; social channels must restrict content to informational posts without unit pricing or performance claims. To access wider Gulf Cooperation Council markets, managers file private-placement notices with Saudi Arabia’s Capital Market Authority and Bahrain’s Central Bank. Some sponsors structure a Cayman feeder above the exempt fund to accommodate offshore investors who prefer non-UAE vehicles, yet they keep substance in Dubai to satisfy double-tax treaty conditions.
Get the most relevant information about business life in Dubai
Cross-border delegation: running an EU feeder
Luxembourg’s CSSF permits portfolio-management delegation to authorised third-country firms when a cooperation MoU exists. Therefore, an exempt fund manager can act as investment adviser to a Luxembourg RAIF that feeds into the Dubai master. This arrangement captures European insurance flows under an AIFMD passport while retaining the Gulf research hub. Managers must supply CSSF with DFSA registration evidence, bi-monthly risk reports and audited capital statements, tasks easily automated once data feeds from the DIFC administrator are live.
ESG alignment and Islamic-window features
Exempt funds can adopt Article 8 SFDR disclosures for European allocators or implement Sharia filters for regional family offices. The DFSA requires documentation of any responsible-investment policy and periodic impact reporting if marketed as sustainable. Managers can hire ESG advisers to integrate carbon-intensity scoring or engage a Sharia supervisory board to vet holdings against AAOIFI criteria. Such overlays widen the investor base with limited incremental cost.
Liquidity, gating and suspension policies
Open-ended exempt funds must calculate NAV at least quarterly and define notice periods and gating thresholds. Common practice sets a ten-per-cent gate per dealing period, with the board empowered to pro-rate redemption requests. Closed-ended funds describe early-exit mechanisms, often allowing secondary transfers subject to manager approval and right-of-first-refusal clauses.
"Clearly articulating these terms in the PPM reduces disputes during stressed markets."
Risk-management framework
Even though the DFSA’s Conduct of Business Rulebook imposes lighter surveillance for exempt funds, boards still need documented market-risk, counterparty-risk and liquidity-risk matrices. Value-at-risk, stress-tests against GCC credit-spread widening and interest-rate shocks, and scenario analyses for property vacancy declines all belong in quarterly packets. The compliance officer ensures limits map to policy and that breaches trigger board alerts within twenty-four hours.
Cyber-security and data-protection obligations
Every DIFC entity must register with the Commissioner of Data Protection, pay a two-hundred-fifty-dollar annual fee and maintain breach logs. Cyber-risk guidance pushes funds to adopt multi-factor authentication, encrypt portable drives and conduct annual penetration tests. Outsourced IT vendors in the district offer bundled defence-in-depth packages starting at six thousand dollars a year, a prudent investment given rising ransomware attacks on asset managers worldwide.
Dispute resolution and investor protection
DIFC Courts operate under English common-law precedent, with judgments enforceable through treaties across the GCC. Funds may specify arbitration under the DIFC-LCIA rules, but many investors prefer court jurisdiction for transparency. Internal procedures should include a complaints-handling policy and a written exit route for dissenting investors if material changes occur, for instance a mandate shift or fee revision.
Future developments and potential regulatory tweaks
Consultations under DFSA CP 152 propose digital-asset endorsements for exempt funds, allowing limited allocation to regulated crypto tokens, capped at twenty per cent of NAV. Managers who wish to pioneer crypto sukuk or tokenised trade-finance receivables should track rule-finalisation timelines and prepare system upgrades for wallet custody and blockchain analytics to meet AML standards.
-
While exempt from some mandatory roles, managers still engage administrators, auditors, custodians, and compliance providers to satisfy best practice and investor expectations.
-
Fund marketing is restricted to private placements and cannot involve public promotion, but cross-border offerings are possible via passporting or offshore feeder structures.
-
Open-ended exempt funds must define gating, redemption, and notice policies, while closed-ended funds typically offer controlled secondary transfers.
How Aston VIP can help you launch and optimise an exempt fund
Designing an exempt fund may appear straightforward, yet document inconsistencies, capital mis-projections or unclear professional-client files can derail the five-day approval. Aston VIP’s fund desk drafts private-placement memoranda, constitutions and risk frameworks that align perfectly with DFSA checklists, ensuring single-cycle clearance. We negotiate administrator and auditor engagements, install AML systems, prepare pro-forma financials and train directors on gate mechanics. After launch our compliance team files quarterly returns, reconciles client-money statements and chairs board-risk sessions, leaving the portfolio group free to focus on alpha. Contact us for a tailored feasibility review and cost-projection within forty-eight hours.
