Doing business in the United Arab Emirates is becoming increasingly attractive for Dutch entrepreneurs thanks to reforms since 2020 that allow 100 percent foreign ownership in virtually all sectors. At Musch Legal, we assist with the incorporation of entities in DIFC, ADGM, and mainland Dubai. The UAE combines civil law with Sharia principles, along with a strong arbitration infrastructure. Those who choose the right structure benefit from fiscally and operationally favorable conditions.
What is the legal issue? (What do you need to know about UAE law?)
The UAE legal system combines civil law codes with Sharia principles, particularly in the area of interest and certain guarantees. Free zones DIFC and ADGM have their own common law-based systems with independent courts. Local agents and distributors enjoy strong legal protection. Judgments by Dutch courts are not automatically enforceable; Arbitration under DIAC, DIFC-LCIA, or ADGM arbitration is the safest route.
What does the law say? (Which frameworks are relevant?)
Federal Civil Code (Federal Law 5 of 1985, revised) governs general civil law. Commercial Companies Law (Federal Law 32 of 2021) governs companies. Commercial Agencies Law (Federal Law 3 of 2022) protects registered agents. Federal Decree-Law 26 of 2020 relaxes foreign ownership. DIFC and ADGM have their own common law and their own courts. UAE is a signatory state to the New York Convention 1958 — arbitral awards are enforceable.
For IP, Federal Law 11 of 2021 (Industrial Property) and Federal Law 38 of 2021 (Trademarks) apply.
Structure
Characteristic
Applicable law
Mainland LLC
100% foreign ownership (Decree 26/2020)
Federal Civil Code + Emirati law
DIFC entity
Dubai Free Zone, English common law
DIFC laws + courts
ADGM entity
Abu Dhabi Free Zone, English common law
ADGM laws + courts
Branch
Subsidiary of foreign parent company
Federal Civil Code
Structure
Characteristic
Applicable law
Mainland LLC
100% foreign ownership (Decree 26/2020)
Federal Civil Code + Emirati law
DIFC entity
Dubai Free Zone, English common law
DIFC laws + courts
ADGM entity
Abu Dhabi Free Zone, English common law
ADGM laws + courts
Branch
Subsidiary of foreign parent company
Federal Civil Code
What risks do companies face? (Where does the risk lie in the UAE?)
Interest rate agreements can be enforced to a limited extent under classical Sharia law. Registered agents acquire protected rights, making termination expensive. Unintended tax liabilities due to UAE corporate tax (since June 1, 2023, 9 percent above 375,000 AED). Litigation before local courts is lengthy and unpredictable. Specific sector requirements apply to business licenses.
Practical example from our practice (How did we avoid an agency claim?)
Musch Legal represented a Dutch exporter with a distribution contract with an Emirati partner and a choice of forum for a Dutch court. After termination, the partner demanded protected compensation under UAE Commercial Agencies Law. The Dutch court dismissed the claim. However, in Dubai, the Dutch judgment proved unenforceable. Upon renegotiation, we opted for DIAC arbitration with DIFC as the seat under Dutch law. Worldwide enforceability via the New York Convention, plus a clear termination clause.
What can you do? (Which structure do you choose?)
Research by sector whether mainland LLC, DIFC, or ADGM fits best. Choose arbitration under DIAC, DIFC-LCIA, or ADGM for enforceable rulings. Avoid interest clauses that may conflict with Sharia; Use commercial surcharges or late fees. Regulate agency relationships cautiously under the Commercial Agencies Law (Federal Law 3 of 2022). Align tax structure with UAE corporate tax. Engage Musch Legal with UAE counsel.
Contracting with parties in the Middle East