UAE Fund Structures for Investment in European Structured Product Funds 

The regulatory landscape pertaining to investment funds in the United Arab Emirates (the “UAE”) has been the subject of significant reform since 2023, with the most recent changes, which included amongst other things, the replacement of the Securities and Commodities Authority with the Capital Markets Authority as the Mainland UAE regulator, being implemented on 1 January 2026. These recent reforms reflect the UAE’s commitment to modernising its regulatory framework with a view to closer alignment with international standards. In light of such reforms, the UAE has positioned itself as a leading jurisdiction, at an international level, for fund domiciliation.

For international fund and asset managers looking to channel GCC capital into their European structured product fund strategies—including risk retention and originator funds—the UAE and in particular, Abu Dhabi Global Market (“ADGM”) and Dubai International Financial Centre (“DIFC”), now offers a robust set of sophisticated, tax-efficient and, if required, Shariah-compliant structuring options.

This bulletin provides an overview of the current funds landscape in the UAE, the regulatory evolution that has positioned ADGM and DIFC in particular as compelling alternatives to traditional offshore jurisdictions for international fund and asset managers looking to raise capital for their European structured product fund strategies, and an insight into the types of fund structures being deployed by such managers.

The Regulatory Backdrop

Prior to 2023, fund managers typically sourced capital in the UAE utilising vehicles domiciled in non-GCC offshore jurisdictions which they sought to market, often faced with practical difficulties, on a reverse solicitation basis. As mentioned above, key regulatory developments have since altered this dynamic, leading to a sharp increase in the number of international fund managers with an established presence in the UAE. Among the most significant developments are the following:

• Enhanced ADGM/DIFC Fund Rules: Both the Financial Services Regulatory Authority (the “FSRA”) in ADGM and the Dubai Financial Services Authority (the “DFSA”) in DIFC updated their fund rulebooks to accommodate more sophisticated structures, including Protected Cell Companies (“PCCs”) and Incorporated Cell Companies (“ICCs”).

• UAE Corporate Tax Regime: The introduction of a 9% corporate tax on Mainland UAE entities has strengthened the attractiveness of ADGM and DIFC for fund domicile, as provided that certain conditions are satisfied, funds domiciled therein can benefit from specific exemptions whilst remaining treaty-compliant for withholding tax purposes.

• Inability to Passport European Funds: With the continued absence of equivalence, EU and UK AIFMD or UCITS funds cannot be passported into the UAE. Given the challenges faced in practice with reverse solicitations and the preference by some fund managers not to engage a locally licensed promoter or a locally authorised firm to promote a fund in Mainland UAE, ADGM or DIFC (as applicable), this has created an incentive for international fund managers to establish UAE-domiciled feeder or parallel structures.

The Benefits of Fund Establishment in the UAE

Establishing a fund in the UAE provides several key benefits, including:

• Proximity to Capital: The UAE and the wider GCC region represents one of the largest pools of institutional capital globally.

• Tax Treaty Network: The UAE has robust Double Tax Treaties with key jurisdictions for European fund and asset managers, such as the UK, Ireland and Luxembourg.

• Common Law Framework: ADGM and DIFC operate under English common law principles, providing familiarity and enforceability for international investors and managers.

• Substance Requirements: European and US regulators and tax authorities increasingly look to the substance of offshore structures. The UAE framework offers credible, auditable substance.

Overview of Fund Structuring Options

The regulatory framework of ADGM and DIFC in particular offer a range of fund structuring options to suit different investment strategies, investor profiles, and commercial objectives. Outlined below are the structures typically adopted by international managers looking to raise GCC capital for the purposes of investment in their European structured product funds.

Structure 1: The Single Investor SPV

Overview:

For a single GCC institutional investor looking to establish a local law governed vehicle, the most streamlined approach is an ADGM or DIFC private company limited by shares.

Key Features:

• No Fund License Required: As there is only one investor, the vehicle is not a “Collective Investment Fund” and does not require DFSA/FSRA (as applicable) fund authorisation.

• Corporate Simplicity: The SPV is governed by standard ADGM/DIFC Companies Regulations (as applicable). The investor holds the shares in the SPV and controls the vehicle through the board of directors or directs a corporate services provider under contractual arrangements with the SPV.

• Direct Fund Investment or Co-Investment Optionality: The SPV can typically invest directly into the European fund and, for example, subscribe for Profit Participating Notes issued by an Irish Section 110 DAC risk retention and originator fund, or alternatively, can be adopted for the purposes of a co-investment/parallel fund structure.

• Tax Efficiency: The SPV can obtain a UAE Tax Residency Certificate, enabling it to claim treaty benefits and avoid withholding tax on distributions from, for example, Ireland or Luxembourg.

• Shariah-compliance: To the extent that the GCC investor requires Shariah-compliance, a qualitative and quantitative assessment of the fund strategy, financials and underlying portfolio will need to be carried out. In the context of a European structured product fund strategy, Shariah-compliance would likely need to be achieved by way of a Shariah wrapper (see “Structure 3” below).

Structure 2: The Multi-Investor Feeder Fund or Parallel Fund

Overview:

Where multiple GCC investors wish to aggregate capital for deployment into European fund strategies (e.g., a risk retention and originator funds), a Qualified Investor Fund or an Exempt Fund is typically the preferred vehicle.

Key Features:

• Legal Form: Typically structured as either:

• a Limited Partnership with a licensed General Partner; or

• a PCC with multiple cells for different strategies.

• Licensing: The fund manager requires a “Category 3C” license from the FSRA/DFSA (as applicable) to manage a “Collective Investment Fund”. Both ADGM and DIFC allow, in certain circumstances, for a foreign fund manager to manage a fund outside of either ADGM or DIFC (as applicable), provided that a firm with the appropriate regulatory permissions is appointed to promote and sell the fund in and from the relevant jurisdiction.

• The PCC Advantage: If, for example, the fund into which investment is being sought offers both European and US strategies, a PCC allows statutory segregation.

• Feeder Fund or Co-Investment Optionality: The fund can typically act as a feeder fund and, for example, subscribe for Profit Participating Notes issued by an Irish Section 110 DAC risk retention and originator fund, or alternatively, be adopted for the purposes of a co-investment/parallel fund structure.

• Tax Efficiency: The fund can obtain a UAE Tax Residency Certificate, enabling it to claim treaty benefits and avoid withholding tax on distributions from, for example, Ireland or Luxembourg.

• Shariah-compliance: To the extent that the GCC investor requires Shariah-compliance, a qualitative and quantitative assessment of the fund strategy, financials and underlying portfolio will need to be carried out. In the context of a European structured product fund strategy, Shariah-compliance would likely need to be achieved by way of a Shariah wrapper (see “Structure 3” below).

Structure 3: The Shariah Wrapper

Overview:

For GCC investors subject to Shariah-compliance requirements, direct investment in, for example, European risk retention and originator funds is impermissible due to, amongst other things, the presence of interest-bearing instruments (Riba) and investments in prohibited (Haram) sectors. A structure to solve for this is a Shariah wrapper, which provides synthetic exposure to the fund.

Key Features:

• Asset Neutrality: The synthetic exposure can wrap the investment into the European fund, notwithstanding the fact that the European fund invests in conventional debt or leveraged transactions.

• Shariah Board Approval: Requires a Fatwa confirming that the structure is permissible.

• Counterparty Exposure: The investor is exposed to the creditworthiness of the swap provider.

In conclusion, the UAE has evolved to become a global hub for fund domiciliation, including for investment into, amongst other things, European structured products and related fund strategies. The continued development and enhancement of fund regulation in the UAE since 2023, combined with the UAE’s extensive tax treaty network and its proximity to wider GCC capital have created an attractive proposition for international managers looking to establish themselves and raise capital in the GCC region.

As the European securitisation market continues to evolve in light of regulatory initiatives in the region, and as GCC investors become increasingly open to diversifying their portfolios beyond the GCC and deploying capital into sophisticated international financial products, the UAE is likely to continue to play a central role in fund raising in the GCC, whether that be via conventional fund structures or Shariah-compliant alternatives.

 

To learn more about our Capital Markets, Structured Finance & Funds practice and how we can assist you, please contact Luke Stowe, Partner, via info@galadarilaw.com and luke.stowe@galadarilaw.com

 

Luke Stowe Partner, Capital Markets, Structured Finance & Funds luke.stowe@galadarilaw.com