The UAE has emerged into a key jurisdiction for the formation of investment funds, with a variety of regulatory setups, fund structures and investor markets. But establishing an investment fund is much more comprehensive than forming a legal entity. Process involves the need to consider the domicile, regulatory classification, fund manager, legal structure, service providers, documentation and ongoing compliance obligations of the fund. Depending on the investment strategy and target investors of the fund, the structure will likely vary.
What Setting Up a Fund Involves
An investment fund is an investment entity that brings together investors’ assets to invest in line with a clear investment policy. The structure of the fund may vary from legal perspective and the fund may invest in different asset classes depending on is different objectives. An investment fund is a fund in which monies of investors are collected and invested based on an investment policy.
Establishing a fund entails a number of interrelated decisions. These involve decisions on the jurisdiction and regulator, fund category selection, legal structure, appointing the right fund manager, service provider selection and documentation preparation.
In addition, the fund and the fund’s manager can be viewed as two components of the setup process. The creation of the fund does not mean that the relevant manager or operator need not have the necessary regulatory permission. The fund manager may have specific licensing, capital, governance, personnel and operational substance requirements. It is therefore crucial to consider who will lead the fund at the outset of the structuring process, and not as a peripheral consideration once the fund is in place.
Where a Fund Can Be Set Up
Investment funds in the UAE can be mainly regulated under three frameworks: the Dubai International Financial Centre, the Abu Dhabi Global Market and mainland UAE. The Capital Market Authority is responsible for the administration of the mainland UAE framework. In accordance with Federal Decree by Law No. 32 of 2025 which came into effect on 1 January 2026, the Securities and Commodities Authority was replaced by the Capital Market Authority. The Capital Market Authority regulates, licenses, supervises and oversees financial activities. The Capital Market Authority has a set of regulatory measures for financial activities, including activities and services related to the establishment and management of investment funds in accordance with Federal Decree by Law No. 33 of 2025.
The Dubai International Financial Centre is regulated by the Dubai Financial Services Authority and the Abu Dhabi Global Market is under the supervision of the Financial Services Regulatory Authority. As such, the selection of the domicile should take into consideration not only the reputation of a specific jurisdiction but also the strategy, investor base, regulatory conditions and operational needs of the specific fund. Fund classification in the DIFC and ADGM are similar, but not exactly the same. The structure of a fund in any specific jurisdiction may be determined by investor requirements, treatment of external fund managers, regulatory considerations, governance requirements and cross-border considerations.
Choosing the Appropriate Fund Category
The fund category should match the targeted investors of the fund. Public fund is to be used for wider distribution, and has more extensive regulatory and disclosure requirements. Exempt Funds and Qualified Investor Funds are geared specifically to a professional or sophisticated investor and tend to have less stringent regulatory requirements in comparison to Public Funds.
The existing DFSA framework also classifies funds as Public Funds, Exempt Funds and Qualified Investor Funds, with Exempt Funds’ minimum subscription of USD 50,000 and Qualified Investor Funds’ minimum subscription of USD 500,000.
The minimum investment amount for a fund should not be the only factor used when choosing the fund. The sponsor needs to identify the investors, the marketing plan adopted for the fund, and the type of regulatory control necessary for the suggested strategy. For instance, a strategy for professional investors such as a private equity or a VC firm may be different from a strategy for retail investors. Private equity, venture capital, hedge funds, property and Islamic funds are also supported by both DIFC and ADGM with the help of specialised structures and strategies.
The Steps in Setting Up a Fund
The process will differ based on jurisdiction and fund type, but there are some common steps.
Þ Establish the Fund Strategy.
To start with, the investment approach, suggested asset class, projected investor base, proposed investment quantity and geographical focus must be identified. These decisions will affect which jurisdiction, legal structure and fund category to apply for. It is especially important to begin with the intended investors as the regulatory treatment of a public fund may be significantly different than the treatment of a privately offered fund.
Þ Choose the Domicile and Fund Category
The sponsor should then decide which jurisdiction in the UAE (mainland, DIFC or ADGM) will be most suitable for the establishment of the fund and what type of fund will be fit for that purpose.
There are various legal structures available at DIFC and ADGM such as investment companies, investment partnerships and ADGM investment trusts. It will vary depending on the investor’s investment approach and governance needs. Limited partnerships can be used for strategies like private equity and venture capital, and investment trusts can be employed for some property structures.
Þ Appoint the Fund Manager
The fund manager involved with the proposed activities must have the necessary regulatory permissions. The manager may also have to meet capital, governance, human resource, compliance and operational substance requirements.
The fund manager is thus one of the most critical elements of the structure. Under the rules of DIFC, some external fund managers from acceptable jurisdictions are allowed to manage a DIFC domestic fund without having to be licensed by the DFSA, if applicable. These terms include the requirement to transfer the fund to an acceptable jurisdiction, to comply with the DIFC laws and courts and to designate an appropriate DFSA licensed fund administrator or trustee to undertake certain local functions.
ADGM also provides for the involvement of Foreign Fund Managers subject to its regulatory requirements. An ADGM fund can be managed by an ADGM based Fund Manager or by a Foreign Fund Manager based in a recognised jurisdiction, as stated by FSRA.
Þ Appoint Service Providers
An administrator, custodian or trustee, auditor, legal advisers and other professional service providers may be required by the fund, depending on the structure of the fund and the relevant regulations.
The administrator may be responsible for operational and administrative duties, such as keeping fund records. A custodian can be liable for the safekeeping of fund assets. The custodian is a legal entity distinct from the fund manager in the structure.
Þ Prepare the Fund Documentation
The types of documents will vary based on the nature of the fund and jurisdiction. They may include constitutional documents, Private Placement Memorandum or Prospectus, fund management agreement, subscription documents, service provider agreements and compliance policies.
The Private Placement Memorandum may be relevant for a privately offered fund because it outlines the investment strategy, risks, fees and the governance arrangements, among other matters. In addition to this, the regulatory application will be asking for information about the proposed fund structure, management team, investment strategy and compliance arrangements. The regulatory application, fund licence application, requirements for registration, and fund management authorisation are all separate components of the regulatory documentation process.
Þ Secure Regulatory Approval or Make the Necessary Notification
The regulatory procedure is based on the category of fund.
For instance, public domestic funds in the DIFC must be registered with DFSA and the managers of Exempt Funds and Qualified Investor Funds are required to be notified prior to the first offering. Systemic conditions, such as Public Funds, must register with the FSRA, while Exempt Funds and Qualified Investor Funds must comply with the prior notification conditions.
Both these types of funds are currently registered and notified separately under the current ADGM framework. FSRA’s existing documents classify both Public Fund Registration and Exempt Fund or Qualified Investor Fund Notification as separate processes.
Þ Establish Operations and Onboard Investors
Upon fulfillment of the necessary regulatory conditions, the fund is eligible to set up is operations and start accepting investors. This includes the Know Your Customer and Anti-Money Laundering processes and ensuring that the operational arrangements of the fund comply with its regulatory requirements.
Regulatory reporting is also a continuous process that should be taken into account initially. The amendments to ADGM FSRA in 2025 have mandated periodic reporting of each of the funds managed by a Fund Manager, depending on the type of fund.
Þ Maintain Ongoing Compliance
Fund establishment is not a single registration procedure. The fund and is manager will have ongoing reporting, audit, valuation, investor communication, governance and anti-money laundering compliance and regulatory reporting obligations.
The fund’s operational substance also needs to be kept up to the required legal and regulatory standards. A building that meets the standards for incorporation but which does not maintain the proper governance, staffing or compliance procedures can cause issues with the regulators and the daily running of the business.
Þ Cost, Time, and Substance
The setup process and cost of the establishment of an investment fund will vary depending on a number of factors, including the jurisdiction, the category of investment fund, legal structure, regulatory and other requirements and complexity of an investment strategy, etc. A fund that is open to broader investors may need to do more work in the regulatory or disclosure area than a private fund that is offered to professional investors.
The overall cost comes with regulatory fees. In addition, the sponsor should take into account legal fees, fund administration, audit, custody, compliance, staffing, office needs and other expenses of operating the fund.
Another significant factor to consider is substance. The factors of capital requirements, staffing, governance and operational substance are relevant factors for fund managers. However, the manager should be evaluated as an operating business and not just as a licence holder.
Sponsors should therefore not use rough cost or time estimates. Requirements may vary based on the category of the fund, its regulatory activity and applicable rules.
Key Risks
There are a number of problems that could cause delays or extra expenses when establishing a fund.
Þ The overall structure can be impacted if there is no plan for the fund manager. The manager plays a key role in the regulatory structure, and should be thought of before concluding the fund structure. This is especially significant if the intended construction is reliant on a third party fund manager or certain licensing authorization.
Þ Choosing the right fund category or legal form is important to avoid the need for fund restructuring. The structure should correspond to the intended investors, investment strategy and distribution model. If these are not taken into account from the start, then the decision can be problematic from a regulatory and operational perspective in the future.
Þ When choosing a structure the cost of the substance and the costs of ongoing operation should not be underestimated otherwise the structure may appear attractive but simply not be viable commercially. Staffing, Compliance, Administration, Audit and Professional Services should be viewed as a part of the initial financial model, not costs that can only be estimated after launch.
Þ The real fund structure should also be taken into account with regard to tax treatment. The Federal Tax Authority’s Investment Funds and Investment Managers Guide provides clarity on the criteria for obtaining exemption from the corporate tax for a Qualifying Investment Fund and discusses the tax treatment of investment funds, investment managers and investors. The guide emphasizes that the exemption is subject to specific conditions, and that it cannot be extended on the basis that a fund has been set up in the UAE or in a financial free zone.
Þ Another important factor to consider is marketing restrictions. The marketing of a fund is dependent on the domicile, category of fund, manager and target investors. It is worth noting that the UAE fund passporting regime does not imply that all funds are eligible to be marketed throughout the UAE without meeting the requirements of the relevant jurisdictions.
Onshore Funds & Marketing Rules.
The Securities and Commodities Authority (SCA) was replaced by the Capital Market Authority (CMA) from 1 January 2026, and was given express duties to regulate the establishment and licensing of investment funds.
This shift is significant for the older literature on mainland funds and foreign fund promotion. Therefore, a fund sponsor should review the regulatory requirements that apply to marketing prior to finalising a marketing distribution strategy against the existing federal regime.
Setting Up on a Solid Footing
The UAE offers a variety of ways to create investment funds, and each component of the structure will need to be thought of in tandem. Typically, it starts with defining the investor base and investment policy, identifying the jurisdiction and type of fund, Legal Structuring, appointment of the fund manager and service providers, preparation of the documentation and meeting regulatory requirements, and the establishment of the fund’s compliance regime.
The best choice is not always the jurisdiction that looks best on its own merits. Whether the proposed structure is suitable for the investors, investment strategy and operational needs of the fund.
Both DIFC and ADGM offer excellent base for institutional and professional investment strategies and the mainland channel may be considered if the fund is to be used in the federal regulatory framework. The decision should be based on the fund’s strategy, investors, regulatory requirements, tax status and distribution strategy.
Fund sponsors should assume the current rules applicable to the proposed structure, as the rules differ between the mainland, DIFC and ADGM and are ongoing to be developed it is assumed that they work from the existing rules. Planning for regulatory considerations, tax treatment, marketing considerations, the substance of the fund, and future costs can minimize the possibility of having to restructure the fund after expending substantial time and resources.
