🇦🇪UAE: Fund Management in ADGM and DIFC Under Own and Third-Party Licenses

Concept

This comparison covers the ADGM and DIFC financial free zones. A locally authorised fund manager falls within Category 3C, with permission for Managing a Collective Investment Fund; Managing Assets is a separate regulated activity. The required capital, appointments and eligible investors depend on the authorised activities and fund type: Public, Exempt or Qualified Investor Fund (QIF).

A sponsor can appoint an existing licensed fund manager instead of building its own management company. The appointed manager remains responsible for the fund and must supervise any permitted delegation; the sponsor's investment-management or advisory work must have an appropriate regulatory basis. A representative office is a separate marketing route and cannot act as the manager.

Cross-border management is possible under the DIFC external fund manager regime or ADGM foreign fund manager regime, subject to their different eligibility and local-provider requirements. Since 16 September 2026, the ADGM route is restricted to closed-ended QIFs; the transition for existing foreign managers is described below. ADGM sub-threshold managers, including VCFMs, cannot provide fund hosting.

Context

DIFC opened in 2004 and ADGM in 2015. Both are financial centres in the UAE with their own courts, common-law frameworks and financial regulators: DFSA in the DIFC and FSRA in ADGM. They offer local structures for funds and their managers. The practical choice depends on the investment strategy, investor base and activities the manager will conduct.

How It Works

The diagram shows the licensed parties and three management routes: an owned local manager, an appointed existing manager, or an eligible foreign manager.

The license is issued by FSRA (ADGM) or DFSA (DIFC). A local fund manager is Category 3C; the fund follows the applicable registration or notification procedure. DIFC has three types: Public Fund (retail, with investor protection), Exempt Fund (private placement among professional clients, minimum subscription US$50K, DFSA notification-processing target of five business days), and Qualified Investor Fund (subscription from US$500K, DFSA notification-processing target of two business days); DFSA has removed the former cap on the number of investors.

ADGM has the same three types and general subscription thresholds: Public, Exempt (from US$50K) and QIF (from US$500K), the latter two launched by notification. Management can be delegated, but responsibility and key functions remain with the licensed manager; under platform hosting, the provider holds Cat 3C.

A DFSA Fund Platform uses an incorporated cell company to share infrastructure across separately incorporated fund cells. The core company is neither a fund nor a fund manager; a licensed manager needs a separate endorsement under CIR 6A. This differs from a protected cell company, whose core and cells form one umbrella fund.

The Form of the Fund Itself

The manager's permission and the fund's legal form are separate choices. In both zones a fund is set up as an investment company, with cell arrangements where permitted, as an investment partnership (limited partnership—the format familiar to PE and VC), or as an investment trust. The structure may be open- or closed-ended; the choice of form determines how investors come in, how liability is divided, and how the fund connects with feeder structures and co-investment vehicles.

What You Need to Launch

Basic structure: a company in ADGM or DIFC, a Cat 3C license for the required fund type, and resident staff.

Capital in ADGM

Capital in ADGM (PRU 3.3.2): US$50K if you manage only Exempt/QIF; US$150K if any of the funds is a Public Fund; US$250K for an asset manager with discretionary management. Capital must meet the higher of the base requirement and the applicable expenditure-based minimum: 13/52 of annual expenditure (18/52 if the firm holds client assets); in August 2025 the FSRA removed it only for Category 4 firms without client assets—Cat 3C keeps it. Since 16 September 2026 an institutional fund manager calculates it at 6/52, and a venture capital or sub-threshold fund manager is outside it.

Capital in the DIFC

In the DIFC, since 1 July 2025 the base capital of a manager running only Exempt/QIF funds has been cut from US$70K to US$40K (PIB 3.6.2); US$140K applies with a Public or Credit Fund or with Managing Assets; US$500K is the full Cat 3C. The expenditure-based minimum (13/52) also stays for a DIFC fund manager: the 2025 reform lifted it from firms that only manage portfolios and hold no client assets, not from those whose licence includes Managing a Collective Investment Fund.

Since 1 July 2026, the activity-based requirement adds the applicable K-AUM, K-ASA and K-COH components. K-AUM is 0.02% of the relevant average assets under management and K-ASA is 0.06% of the relevant average safeguarded and administered assets, which include specified fund property. The current rules average month-end values over the previous six months, with adjustments for newer firms; amounts included in K-ASA are excluded from K-AUM. Capital is held at the highest applicable measure.

Appointments and Operating Routes

Roles: SEO, compliance officer and MLRO must normally be UAE residents; the rules allow limited residency waivers for compliance officers and MLROs. A finance officer need not be resident. In ADGM, sub-threshold managers (including VCFMs), institutional fund managers and institutional fund asset managers are exempt from appointing a finance officer; in the DIFC, the exemption applies where the firm's only financial service is managing a venture capital fund. For an ADGM body corporate whose head office and registered office are in ADGM, all directors require registration as licensed directors. A physical office in the zone is required.

An independently licensed local fund manager requires the relevant permission, capital, appointments and operating arrangements. An existing licensed manager can provide management and operational services within its permitted activities; the sponsor's role and the manager's control must be documented. Launch timing depends on the structure, preparation and provider onboarding. A sponsor independently advising or arranging from the zone may need Category 4 permission: base capital is US$50K in ADGM and US$30K in the DIFC for these activities, with no expenditure-based minimum where the applicable client-asset conditions are satisfied. Representative offices are limited to permitted marketing. Sandbox tracks such as ADGM RegLab and the DFSA Innovation Testing Licence concern authorised testing arrangements, rather than a general fund-management permission.

Management from Abroad

An ADGM foreign fund manager must be regulated or registered in a recognised jurisdiction and submit to ADGM law and courts. Under FUNDS 7.1.1–7.1.2, it may manage only closed-ended domestic QIFs. Before management starts, the fund needs a locally licensed administrator or trustee, an eligible custodian unless that is both impractical and disproportionate, and a licensed corporate service provider as its agent for service of process.

A UAE-resident individual must sit on the fund company's board or the general partner's board, as applicable. The foreign manager may not engage a third party to provide investment advice or manage the fund's property. Existing foreign managers have the transition described below.

In the DIFC, an external fund manager must be a body corporate based in a recognised or otherwise acceptable jurisdiction, submit to DIFC law and courts and appoint a DFSA-licensed administrator or trustee. This route is unavailable for Credit Funds. CP 173 proposes abolishing it; the proposal should not be presented as an enacted change.

The table shows base requirements and standard regulatory fees. Capital tests are compared, not added. Actual fees depend on permissions, endorsements and applicable surcharges; the figures exclude additional crypto-related charges.

UAE Mainland: a Separate CMA Route

Outside the two financial free zones, the Capital Market Authority (CMA) has a separate licensing route. Annex 1 to Section 2 of its Rulebook, Category 2, sets minimum paid-up capital at AED 1 million for investment fund management and AED 3 million for portfolio management. The minima are added when activities are combined. This paid-up floor does not replace the applicable ongoing capital-adequacy requirements.

The CMA's licensing process separates initial approval from the operating licence and requires the prescribed legal form, resources and accredited roles. Its stated 30-day service duration is not a complete company-and-fund launch timetable. The local fund needs separate authorisation: the management company and board cannot perform its functions before the CMA licenses the fund. Compare this route with ADGM/DIFC before choosing the manager's jurisdiction; see fund-manager jurisdictions.

Compliance

Capital is maintained continuously—as the highest of the applicable measures: base capital, the expenditure-based minimum and, in the DIFC from July 2026, the activity-based requirement; liquidity is a separate test. Under DFSA PIB 3.5.3, liquid assets must exceed the higher of base capital and the expenditure-based minimum where PIB 3.7 applies, or exceed base capital where it does not. A manager whose only activity is managing a venture capital fund follows a separate adequacy test.

In ADGM, the FSRA's prudential guidance requires firms to retain appropriate liquidity and reminds them to notify the regulator when capital falls below 120% of the requirement.

The manager must also comply with AML/CFT rules, maintain the required resident appointments and provide periodic regulatory reports (ADGM requires a separate periodic return for each fund), meet fit-and-proper requirements for controllers and approved persons, and maintain economic substance in the zone—real mind and management, office, and staff. Under delegation or hosting, the licensed manager's compliance responsibility does not diminish; the appointed manager retains oversight and accountability.

How It's Done in the Market

One commercial example is Dalma Capital's AIMgp platform, which describes a DIFC management-company service with operational, regulatory and compliance infrastructure. The provider advertises a fund launch timeline of 1–2 months. This is the provider's indicative timeline, separate from the regulator's fund-notification targets and from obtaining a new management licence.

A representative office supports permitted marketing; it is not a substitute for a fund manager. The comparison between a host and an independent management company depends on the investment decision process, compliance oversight, onboarding, fees and conditions for a later transfer. The personal tax side for residents is set out in UAE tax residency.

Tax for the Manager and the Fund

A manager established in ADGM or the DIFC can benefit from 0% corporate tax on qualifying income if it meets the Qualifying Free Zone Person conditions. Regulated fund management and wealth and investment management are qualifying activities under Ministerial Decision 229/2025, which replaced Decision 265/2023. Without QFZP status, the standard rate is 9% on taxable income above AED 375K.

Fund Exemption

A fund may apply for exemption as a Qualifying Investment Fund under Cabinet Decision 34/2025, which replaced Decision 81/2023 for tax periods beginning on or after 1 January 2025. This tax status is separate from the regulatory QIF category. The conditions include regulatory oversight of the fund or its manager, interests traded on a recognised exchange or marketed sufficiently widely, and no principal tax-avoidance purpose. For a non-REIT fund, investment business must be its principal activity and investors must not control day-to-day management; the fund must also provide the information investors need for their tax calculations.

Corporate Investors

Exemption of the fund does not automatically exempt a corporate investor. For a non-REIT fund, an investor and its related parties holding at least 30% where the fund has fewer than ten investors, or 50% where it has ten or more, may have to include their proportionate net profit in taxable income. The test also covers voting rights, board composition, profit rights and significant influence. The first two financial years are excluded only with sufficient evidence of an intention to stay within the limits from year three; other limited exceptions also apply.

A separate rule includes 80% of proportionate UAE immovable-property income where that property exceeds 10% of the fund's assets, unless the concentration rule applies. Distribution and disposal exceptions affect the calculation. REITs have separate conditions and investor rules.

Limited Partnerships

A Qualifying Limited Partnership may apply for exemption without the QIF ownership-diversity test. It must principally conduct investment business, have no income from UAE immovable property and have no principal tax-avoidance purpose. A taxable corporate investor includes its proportionate net income, with adjustments to avoid taxing the same distributed profit twice.

Applicable Regulation

ADGM: FSMR and FSRA rules (FUNDS, COBS, PRU). DIFC: Collective Investment Law and DFSA Rulebook (CIR), the collective funds regime; the representative office, external fund manager (CIR 6.1) and Fund Platform (CIR 6A) regimes.

Specialised Managers

Venture capital fund managers in ADGM (VCFM) are a sub-category of sub-threshold fund managers under the rules of 16 September 2026. They manage venture capital funds with combined committed capital of no more than US$200 million. Their base capital requirement is US$50K; they are exempt from the expenditure-based minimum, finance-officer appointment and internal-audit function. Sub-threshold managers, including VCFMs, may not provide fund hosting. Existing VCFMs have the transition period described below.

The DIFC applies a different capital treatment: a firm whose only financial service is managing a venture capital fund is exempt from base capital and the capital requirement under PIB 3.5.1 and 3.6.1. Its application and annual regulatory fees are US$2K each.

ADGM's 2026 Changes

Consultation Paper No. 12 of 2025 was published on 24 November 2025, with comments due by 30 January 2026. It proposed enhancements to ADGM's funds framework. The following rules are the enacted position after that consultation.

The first-phase rules took effect on 16 September 2026. A sub-threshold manager manages closed-ended funds that exclude retail clients, with combined committed capital of no more than US$200 million; VCFMs are a sub-category. Both have US$50K base capital and no expenditure-based minimum. An institutional fund manager serves QIFs or foreign equivalents with a US$5 million minimum subscription and no individual unitholders, subject to the employee-investment-vehicle conditions in the guidance. Its capital requirement is the higher of US$50K and 6/52 of annual audited expenditure.

The FSRA's 16 September 2026 announcement provides a transition period until 31 March 2027 for the new rules applying to existing venture capital fund managers and foreign fund managers. The regulator will contact those firms about their transition arrangements.

DFSA's Current Consultation

The DFSA issued Consultation Paper No. 173 on 7 July 2026, with comments due by 7 September. It proposes abolishing the external fund manager regime; removing specialist-class requirements for Exempt money-market and private-equity funds and for Exempt/QIF credit funds, while retaining credit safeguards; and reducing a credit fund manager's base capital to US$40K.

It also proposes investment access for eligible employees involved in fund investment decisions or advice, with relief from minimum subscription and net-asset requirements; a first accounting period of up to 18 months; and a three-month transition after adoption. These are proposals, not current permissions.

Where It's Heading

Both zones continue to revise their funds frameworks. The DIFC removed the caps on the number of investors in Exempt/QIF in 2018, cut a fund manager's base capital to US$40K in 2025 and put a new edition of its funds regime out for consultation in 2026 (CP 173); ADGM is rebuilding its own—the first-phase rules that grew out of Consultation Paper No. 12 of 2025 apply from 16 September 2026 and ease entry for small, venture and institutional managers. For an emerging manager, the choice remains between appointing an existing licensed manager and establishing its own regulated business. A separate comparison is available in Singapore.

The choice depends on who will make investment decisions, the investor base, the manager's permissions, available capital and resident staffing. A representative office covers permitted marketing, a qualifying foreign manager uses a restricted cross-border route, and a licensed local manager may manage directly or provide permitted hosting. Provider launch estimates should be assessed separately from regulatory notification targets.