Among the many free zones in the United Arab Emirates, two occupy a distinct category. The Dubai International Financial Centre and the Abu Dhabi Global Market are financial free zones with something no ordinary zone has: their own legal systems, based on common law, with their own courts and their own financial regulators. For international investors, funds and family offices, that is frequently the deciding feature.
A common law island inside a civil law country
Both centres operate their own civil and commercial legislation, separate from the federal law that applies elsewhere in the Emirates, and both have independent courts staffed substantially by judges from common law jurisdictions, conducting proceedings in English. The ADGM went furthest, applying English common law directly. The practical consequence is that a contract, a shareholders’ agreement or a security package drafted by international counsel behaves the way that counsel expects.
The two are routinely described in the same breath, and their mechanisms are not the same. In Abu Dhabi the foundation is the Application of English Law Regulations 2015, which under the centre’s own guidance on the application of English laws give English common law, including the rules of equity, direct precedential value in the ADGM courts on an evergreen basis, meaning as the body of English case law stands from time to time, with power to adapt it or depart from it where the circumstances of the ADGM require, and subject to any contrary provision of an ADGM enactment or applicable Abu Dhabi law. The statutory half runs on the opposite principle: the modified English statutes scheduled to those Regulations have effect in their state as at the effective date, other English statute law has no effect unless an ADGM enactment so provides, and modifications made in England afterwards do not have effect unless a specific ADGM enactment permits it.
The DIFC no longer imports English law by default. Article 8 of its Law on the Application of Civil and Commercial Laws sets a ladder: so far as there is a regulatory content, any applicable DIFC statute, failing which a jurisdiction expressly chosen by a DIFC statute, failing which the law agreed between all the relevant persons concerned, failing which the law most closely related to the facts and the persons, failing which DIFC Law. Until the amendment consolidated in November 2024 that last rung read the laws of England and Wales. It now reads DIFC Law, and Article 8A defines what DIFC Law contains: DIFC statute and the judgments of the DIFC Courts interpreting it, supplemented by the common law including the principles and rules of equity, with the DIFC Courts free to have regard to the common law of England and Wales and of other common law jurisdictions, and bound not to develop a common law inconsistent with DIFC statute.
Where the carve-out stops
Article 3 of Federal Law No. 8 of 2004 on Financial Free Zones decides how far the autonomy runs, and it is narrower than the reputation of these centres suggests. Its second clause subjects the zones and their financial activities to all provisions of federal law with the exception of the federal civil and commercial laws. One class of federal legislation is displaced and the rest is not, so federal criminal law continues to apply inside the perimeter, and the first clause says as much of the federal money laundering legislation by name. Article 4 then sets limits of its own, among them that, with regard to financial banking activities, companies licensed in the zones may not take deposits from the national market or enter into transactions in dirhams and licensing standards may not be lower than those applied in the State; that insurance activity in the State is limited to re-insurance; and that the actual existence of the licensed companies and establishments is restricted to the boundaries of the zones, although the same provision permits licensing them to operate outside the State.
Why that matters to an investor
For a European or international investor, the question behind every cross-border structure is what happens if something goes wrong. A dispute resolved under a familiar legal system, in English, before a court whose reasoning is predictable, is a materially different risk from a dispute resolved under an unfamiliar system. This is why funds, financing arrangements and joint ventures involving international parties gravitate to these two centres even when the underlying activity could sit elsewhere.
What DIFC and ADGM sell is not a rate. It is legal predictability, in English, inside the Gulf, and for the transactions that need it there is no substitute.
That predictability is written into the court statutes rather than left to practice. DIFC Courts Law No. 2 of 2025 makes English the official language of the DIFC Courts and lets parties confer jurisdiction by express written agreement, before or after the dispute arises, provided it is made in specific, clear and express provisions; Abu Dhabi Law No. 12 of 2020, which replaced Article 13 of the ADGM founding law, gives the Global Market Courts a similar opt-in and makes them courts of the Emirate. The choice of governing law and jurisdiction is only worth what the judgment can reach, and neither centre generally exports its own writ: enforcement elsewhere in the Emirate runs through the courts of the Emirate, in Dubai on a request for assistance that requires a final and executory judgment, the executory formula, an official Arabic translation and payment of the fees, and in Abu Dhabi by direct application to the Emirate’s courts or by deputising one of their enforcement judges.
Regulation as a feature
Each centre has its own financial regulator, with its own rulebook covering asset management, banking, insurance and related activities. For a fund manager or a wealth manager, being regulated in one of these centres provides a recognized licence and a supervisory framework that international counterparties understand. That is an asset, not a cost, and it is one of the reasons wealth and fund management appear among the qualifying activities for the free zone tax treatment.
The link between the licence and the tax treatment is explicit in the drafting. Ministerial Decision No. 229 of 2025 lists fund management services and wealth and investment management services among the qualifying activities, and defines each of them by reference to services subject to the regulatory oversight of the competent authority in the State, a term its definitions article fills with the Central Bank, the Dubai Financial Services Authority of the Dubai International Financial Centre, the Financial Services Regulatory Authority of the Abu Dhabi Global Market, the Securities and Commodities Authority, or any other entity the Minister determines. The same decision treats banking activities as an excluded activity, and insurance activities as excluded without prejudice to reinsurance services and to headquarter services provided to related parties. Supervision is a condition of the treatment rather than a by-product of it, and the regulator that makes one licensed business qualify supervises another that does not.
Foundations and family structures
Both centres offer foundation structures, vehicles designed for holding and succession that will be familiar to anyone who has used a European foundation. For Gulf families, these have become an important tool for holding assets and planning succession within their own region rather than exclusively offshore, and they sit naturally alongside the European structures we describe in our note on Gulf family offices structuring European real estate.
The Dubai vehicle is governed by the Foundations Law, DIFC Law No. 3 of 2018: a foundation is a body corporate with a legal personality separate from that of its founder, its property is not held by it upon trust for anyone, and the founder has such rights, if any, in respect of it as its by-laws provide. The Abu Dhabi centre has its own instrument for the same purpose, the Foundations Regulations 2017.
What families are really buying is the protective wall, and the wall has openings. Article 13 of the DIFC law refers questions of capacity, validity, administration and powers conferred or retained to DIFC law without reference to the laws of any other jurisdiction to which the foundation may be connected, and Article 14 protects a valid disposition against challenge by reference to foreign law on the grounds it lists, among them that the foreign law does not recognise foundations or confers heirship rights or rights arising from a personal relationship. Article 13 then sets six limits on its own rule, subject to Articles 14, 15 and 16: it does not validate a disposition of property that the founder or contributor neither owns nor holds a power over, does not validate a disposition of immovable property situated outside the DIFC where that disposition is invalid under the local law, and does not validate a testamentary disposition invalid under the law of the testator’s last domicile; nor does it affect the recognition of foreign law on whether the founder or contributor owned the property transferred or held a power to dispose of it, of the law of a corporation’s place of incorporation on its capacity, or of foreign law prescribing generally, without reference to the foundation, the formalities for disposing of property within its jurisdiction. Article 14 also shields a transfer to the foundation from the bankruptcy or liquidation of the founder or contributor and from the claims of their creditors, notwithstanding any foreign statute, subject to a qualification in the same article: where the DIFC Courts determine that at the time of the transfer the founder or contributor intended to defraud a creditor and the transfer rendered them insolvent or without property from which that creditor’s claim could have been satisfied, the transfer still stands, but the foundation becomes liable to satisfy the claim up to the interest the founder or contributor had in the property before the transfer and any later accumulation, and the creditor may recover only from that property or its proceeds.
The tax position is the same regime
Being in DIFC or ADGM does not by itself change the corporate tax analysis: these are free zones, and an entity in them is subject to the same qualifying free zone person conditions as an entity anywhere else, which we set out in our note on the qualifying free zone person and the zero per cent rate. What the financial zones add is a legal and regulatory environment, not a different tax regime, and a structure that confuses the two starts from a misunderstanding.
Federal Decree-Law No. 47 of 2022 names the Financial Free Zones Law once, among the legislation reviewed before it was made, and nowhere else in its text as enacted. It works through definitions of general application: a free zone is a designated and defined geographic area within the State specified in a decision issued by the Cabinet, and a free zone person is a juridical person incorporated, established or otherwise registered in one, including a branch of a non-resident person so registered. Article 3 imposes corporate tax on a qualifying free zone person at zero per cent on qualifying income and nine per cent on taxable income that is not qualifying income.
Article 18 sets the conditions, and they are cumulative. The person must maintain actual and sufficient existence in the State, derive qualifying income as specified in a Cabinet decision, not have elected to be taxed at the ordinary rates, comply with the arm’s length and transfer pricing documentation articles of the decree-law, and meet any further conditions the Minister prescribes. Ministerial Decision No. 229 of 2025 adds two conditions to those of Article 18: non-qualifying revenue must not exceed the de minimis requirements, which are satisfied where non-qualifying revenue in the period does not exceed five per cent of total revenue or five million dirhams, whichever is lower, and the person must prepare audited financial statements. Failing any of these conditions at any point during a tax period costs the status from the beginning of that period, not from the date of the failure, and under the same decision the status is also lost for the four subsequent tax periods.
How they sit with a European structure
For a group or family with both Gulf and European interests, a DIFC or ADGM entity and a European holding are complementary rather than alternative, each doing what it does best: the Gulf centre providing regulated presence and legal predictability in the region, the European holding providing ownership and access inside the single market. The design has to be coherent across both, and the interaction with the UAE corporate tax reform is set out in our note on UAE corporate tax and your European structure.
Montclare runs a dedicated Middle East desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.