DIFC allows 100% foreign ownership

dubai - An activity of inviting deposits will fall under the category 1 type licence

Q: We are a group based out of India. I have been informed that Dubai International Financial Centre allows 100 per cent foreign ownership. We are exploring the idea of inviting deposits from UAE residents and invest the same in Indian funds and other instruments. We gather that such licence will be a well-regulated licence. Please provide some details on this subject. M.A., India

A: Dubai International Financial Centre (DIFC) allows 100 per cent foreign ownership. When applying for such activity, approval of both Dubai Financial Services Authority (DFSA) and DIFC is required. An activity of inviting deposits will fall under the category 1 type licence, which is a highly regulated licence. Dubai Financial Services Authority (DFSA) is the independent regulator of financial services provided in or from DIFC. Following financial services fall under Category 1: Accepting deposits, providing credit; dealing in investments as principal; arranging credit or deals in investments; and advising on financial products or credit.

This category is a banking licence. DFSA would normally grant such licence only to subsidiaries/branches of banks regulated in other jurisdictions.
The information that is required to be filed with the authorities will include details about the proposed firm, its shareholders and beneficial owners, its corporate and management structure, financial data, etc. Documents proving lawful source of funds and identity documents are mandatory.

Following are required to be prepared and submitted: Letter of Intent; regulatory business plan as per DFSA rules; risk, compliance, anti-money laundering manuals; compliance monitoring programme; DFSA application forms; financial projections as per DFSA format; requisite resolutions for setting up the company; and, Articles of Association for the new company (one may adopt standard articles of association).

Proper presentation and dialogue with the DFSA will be required for the above.

On receiving "in-principle" approval, the company has to be registered in the DIFC. The company must have office within DIFC and lease/purchase documents are to be provided to DIFC. There are various methods prescribed by DFSA for the capital introduction for such license and the same have to be followed. In addition to the board of directors, the entity would to need to appoint a senior executive officer, finance officer, compliance MLRO office and auditor. All these individuals should have the relevant qualification and experience.

There are three types of fees involved for DFSA, namely, application fees, initial period fees and annual fees. Thereafter, the DIFC fees for incorporation, annual license, data protection fees, etc. are also to be paid. DFSA will issue the licence after inspection of office premises. As you will gather from the above, the process of securing a licence entails various stages and documentations.

It is advisable that you seek assistance from a professional firm. On securing the licence, the entity would need to maintain records and documents as per the standards of DFSA and periodical reviews would be made. This being a high regulated activity, the management has to ensure that stringent discipline has to be maintained.

Q: I have two companies in a Dubai-based free zone for more than two years. We spent a lot of time in the interior fit-out of the offices to comply with the free zone regulations. Business has been slow for these companies plus I have to continuously travel for my other overseas businesses. There are visas on these companies. The company licence was not renewed and neither was the audit done. Some visa has expired. Would I face any issues in the renewal of visas? H.K., Dubai

A: Like any entity in the UAE, the licence of the free zone entity also has to be renewed on time every year. Some free zones allow 30 days' grace period to renew such licence. In order to renew the licence, the management would need to furnish the audit report from the auditor approved by the free zone authority. Mere payment of renewal fees to the free zone will not be sufficient as their requirements of submission of renewed rental contract, audit report, PO Box renewal, insurance renewal, etc., would also entail.

Where the licence is not renewed in a reasonable time, the free zone authority will sanction such company and even fines can be imposed. Visa services for such company will be stalled and hence renewal of visas will face problems. Entrepreneurs need to be more vigilant and responsible to make sure that such financial and legal discipline is followed by the company to avoid unnecessary hassle and additional costs. As the owner of the company, one is recommended to ensure that the renewal process is taken seriously and the requirements of the free zone authority are fulfilled.

The writer is partner at Crowe Horwath, UAE. You can send your business queries to him at atik.munshi@crowehorwath.ae. Views expressed are his own and do not reflect the newspaper's policy.