Top tips to avoid legal problems in the UAE

Attracted by the country’s efficient regulatory and legal framework, the UAE has fast become the land of opportunity with thousands setting up businesses here each year. However, while enjoying the trappings of a successful business might be an enticing thought, it is important to understand the need for corporate compliance too.

In fact, Kishore Mulani, Managing Partner, Lawgical Group, says that operating in the UAE offers unparalleled access to a thriving business environment, but it also requires a strategic approach to navigating local regulations and business norms.

So, what exactly do company owners need to know about the essential legal practices for running a business?

Understand the UAE’s regulatory framework

“Foreign companies entering the UAE enjoy a flexible regulatory framework with options to set up on the mainland, in various free zones, or in financial free zones like Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM); each with distinct legal systems. DIFC and ADGM, for instance, offer a common law environment within the UAE’s civil law framework, appealing to those familiar with common law,” says Mulani.

Licensing requirements will vary by jurisdiction and business type and Mulani adds, “While free zones typically allow 100 per cent foreign ownership, some mainland set-ups may require a local service agent or specific ownership structures, including a local sponsor for certain activities. Compliance also depends on jurisdiction. For example, mainland entities follow the UAE Commercial Companies Law, while some free zones, such as DIFC, operate under specific local regulations. All businesses, however, must meet federal compliance standards, such as Anti-Money Laundering (AML), Economic Substance Regulations (ESR), and Ultimate Beneficial Ownership (UBO) requirements. Adhering to these diverse regulatory requirements ensures that companies operate smoothly and maintain credibility in the UAE’s competitive business landscape.”

Another important legal aspect is corporate governance, which directs businesses in how they must work. It plays a vital role in any organisation and is a much-needed part of the framework for running a business.

“Corporate governance in the UAE reflects a framework of rules, practices, and processes that promote accountability, transparency and ethical conduct among corporate entities. Public Joint Stock Companies (PJSCs) are required to comply with Securities and Commodities Authority (SCA) regulations, including mandates for board independence, financial transparency and audit oversight, with recent 2024 reforms further strengthening these areas. Good corporate governance for PJSCs helps balance the interests of shareholders, management and the wider community, fostering investor confidence and reducing risks of mismanagement,” explains Mulani.

At this time, there are a number of main regulatory requirements for any foreign company wanting to operate in the UAE. Mulani sheds further light on this.

“The UAE Commercial Companies Law introduces corporate governance provisions for LLCs, though these are less comprehensive than those for PJSCs. Additionally, the new law emphasises social responsibility, reflecting a commitment to broader societal interests alongside business goals. Meanwhile, the Central Bank of the UAE has issued governance standards for insurance companies, addressing previous regulatory gaps in this sector. While the SCA’s Corporate Governance Code is mandatory for listed companies, voluntary adoption by private entities is recommended for best practice as it can enhance credibility and trust in the UAE’s competitive business landscape.”

In a competitive business market, the landscape is incessantly changing and business owners are advised to stay on top of new regulations.

“The UAE’s legislative landscape is dynamic, with frequent updates to laws on labour, data privacy, Anti-Money Laundering (AML), and Economic Substance Regulations (ESR), demanding companies’ attention to ensure compliance. Companies must adhere to regulatory requirements from authorities such as Department of Economy and Tourism (DET), DIFC, and ADGM, depending on their set-up location. Ownership regulations vary, with certain sectors requiring a local partner or service agent, so understanding these rules is crucial,” says Mulani.

“New regulations around telemarketing, electronic signatures, and an evolving tax framework are reshaping business operations and compliance standards. Staying informed about the legislative and regulatory updates, along with understanding the geographical dynamics of the seven emirates, enables businesses to operate smoothly, avoid penalties, and make informed decisions in this high-potential market.”

Importance of succession planning

Certainly, adhering to the geographical dynamics is imperative and key to a successful business. However, something which business owners might not have considered is the need for succession planning. In Lombard Odier’s 2024 United Arab Emirates Expat Study, it cited that 61 per cent of expats have yet to make any tax or estate planning arrangements for their children abroad. Since the only way to appoint a guardian for your dependants is to declare this legally, considering drafting a will or guardianship document for any foreign national is crucial. Even for those without dependants, registering a will is of the utmost importance.

“A unique challenge faced by expatriates in the UAE is navigating the diverse legal frameworks available for will registration,” says Ahmad Ali Al Bannai, Founder & CEO, Ahmad AlBannai Advocates & Legal Consultants.

“Federal Law No. 28 of 2005 governs wills that adhere to Islamic law, while the recent Federal Decree-Law No. 41 of 2022 allows non-Muslims to register wills that do not apply Islamic inheritance rules. Additionally, both the Abu Dhabi Judicial Department and DIFC will offer registration services for Muslims and non-Muslims alike, providing flexibility for individuals to manage their estate planning, succession and wills according to their personal preferences,” Al Bannai explains.

As with the various business legislations, recent legal changes have been made in succession and estate planning too.

“The most recent significant change in succession and estate planning for expatriates is the introduction of Federal Decree-Law No. 41 of 2022, which establishes a dedicated succession framework for non-Muslims in the UAE,” says Al Bannai.

“Under this law, Islamic law (previously governed by Federal Law No. 28 of 2005) is no longer the default applicable law when a non-Muslim individual with assets in the UAE passes away. This change provides non-Muslim residents with greater flexibility and clarity in managing their estate planning and succession according to their own preferences.”

Whilst nobody likes to think about things going wrong, by understanding the correct legislation, potential negative implications can be mitigated. Therefore, it pays to understand the essential legalities because you never know when your family might need that will or succession plan, and by then it could be far too late. ■