In a significant move by Abu Dhabi Global Market (ADGM) pursuant to UAE Cabinet Resolution No.41 of 2023, by expanding its jurisdiction from Al Maryah Island to the Al Reem Island, ADGM introduced a landmark shift in the legal framework governing the area of Al Reem island which replaced the existing federal law with a common law system as applied in ADGM. This was not only a groundbreaking change for the island but also mirrors a rare, almost overnight shift in legal system that has few precedents in modern history and is poised to reshape the way businesses operate, with the promise of a more flexible and internationally recognized legal framework.
A major factor behind this expansion was the growing demand for office spaces within ADGM's original jurisdiction on Al Maryah Island. With occupancy rates on Al Maryah Island having reached nearly 99%, companies have struggled to secure office space, which is a mandatory pre-requisite for incorporating in ADGM.
The change has undoubtedly impacted businesses operating on Reem Island. Since the announcement in April 2023, companies have been given a transition period until December 31, 2024, to align their operations with ADGM's common law system. For those choosing to stay on Reem Island, the deadline is fast approaching, and businesses are now preparing to finalize their legal and operational transformations, ensuring compliance with the new framework. And companies that decide not to relocate to ADGM have the option to exit Reem Island to align with their business goals and operations.
What Options Do Companies in Al Reem Island Have?
Companies must decide if they need to continue their operations with ADGM's new common law framework or under the local DED (Department of Economic Development) regulations.
For New Applicants:
If you are looking to set up a company with office address in Al Reem Island, the DED has stopped issuing new commercial licenses for Al Reem Island addresses as of October 30, 2023. Therefore, any new businesses wishing to establish themselves in the area must now obtain a commercial license from ADGM following the incorporation and licensing rules of ADGM.
For Existing Entities:
For businesses already established on Al Reem Island under the DED framework, there are two options available:
- Continue into ADGM: Existing DED-registered entities have the option to initiate a continuation (migration ) application with the ADGM Registration Authority to obtain a commercial license from ADGM on or before December 31, 2024. By doing so, the entity will transition from the DED to ADGM and will be deemed as a continued entity. This transition will require the entity to obtain ADGM visas for its employees and issue new employment contracts pursuant to ADGM's Employment Regulations. After the transition, the company will no longer be registered with the DED, and its operations will be governed by ADGM's regulatory framework and subject to ADGM Companies Regulations 2020.
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Migrate to Abu Dhabi Mainland: Alternatively, existing DED entities may choose to remain under the DED framework and continue operating under UAE federal and Abu Dhabi local regulations. However, this option mandates that the company obtain a physical office in the Abu Dhabi mainland, as businesses in Al Reem Island can no longer hold their DED-registered premises in the ADGM Free Zone. Entities opting for this route must relocate outside of ADGM by the December 31, 2024 deadline.
Exemption:
However, branch companies are not eligible for this continuation and they must register a new branch within ADGM and cancel their previous DED branch license in order to remain compliant with the new regulations. Considering the fact that there is a significant number of branch licenses operating in Al Reem Island currently, this has been a challenge.
Key Factors:
Business transitioning to ADGM should take many factors into consideration including need for third party approvals like Ministry of Defense approval (MOD), Supreme Petroleum Council (SPC), Ministry of Human Resources and Emiratization (MOHRE), the potential regulatory changes especially if you are a financial entity, the challenges of not finding the same activity under ADGM’s permitted list, not finding the possibility of clubbing activities under non-financial and retail categories etc. Also, businesses with operations outside ADGM in the mainland is likely to face restrictions, although a dual license regime in ADGM might offer solution. Additional factors include amending the employment contracts, impacts on the visa requirements and visa quota, operational costs etc.
Litigation:
In accordance with the cabinet resolution, it has been reported that there have been instances where Abu Dhabi Courts declined jurisdiction to hear cases which has some sort of connection to Al Reem Island. While this might cause some disruption initially, the advantages offered by ADGM courts and the remedies provided will definitely be a great development.
Transition Support and Efforts by ADGM:
Since the announcement, ADGM has made quite an effort to ensure a smooth and effective transition, including conducting workshops, information sessions, and tailored consultations through kiosks and dedicated CRM team. ADGM has also collaborated with different authorities to sign MOUs such as with MOHRE, Department of Municipality and Transport (DMT) pertaining to employment contracts, visa, real estate etc.
Information Center at Shams Boutik Mall and business centers including Tamouh Tower provides businesses with necessary assistance, offering guidance on licensing, regulatory changes, and operational support. This initiative aimed at facilitating communication and offering a one-stop resource was further strengthened by delegating the operational assistance to selected typing centers and Corporate Service providers(CSPs) .
ADGM also hosted community gatherings in March and July aimed to strengthen connections with the local business community and sharing key updates on critical topics such as licensing procedures, registration fees, and the transition process, ensuring that businesses remain well-informed as they adapt to the new legal environment.
To encourage more businesses in the non-financial and retail sectors to obtain their ADGM commercial license, ADGM introduced an incentive program providing businesses to apply for an ADGM license without any incorporation fees if they complete the licensing process by October 31, 2024. This was a pro-active approach and was well received thus resulting in the growth of number of companies migrating from Al Reem to ADGM.
How the change affects Law firms in the Al Reem Island:
Law firms in Al Reem Island need to reconsider many factors before applying for a migration to ADGM as ADGM have the business activity 'legal consultancy' which requires applicant firms to meet certain qualifying criteria such as being in operations for 8 years since inception of business, have 2 offices in distinct jurisdictions or states, have 2 offices in the same country, each managing partner of the firm to have at least 10 years of post qualification experience, to have at least 8 partners, have at least 25 qualified legal professionals employed by the firm in other jurisdiction, to have professional indemnity insurance that can be extended to ADGM offices upon registration in ADGM and others. Also, individuals are not allowed to apply for this activity. This would seem like a real challenge to certain legal firms established way before in Al Reem Island under DED.
The Path Forward
As per the public register, around 100+ companies have already migrated to ADGM and a significant number have already set up as new entities.
As we approach the December 31, 2024 deadline, it's worth reflecting on the changes made thus far and the broader impact this transition will have on ADGM’s growing role as a hub for global business.
ADGM, with yet another groundbreaking announcement of the revision of its licensing fee schedule for non-financial and retail entities effective from January 2025 will indeed make it more attractive and accessible for all investors.
Under the revised fee schedule, new registrations within the non-financial category of businesses will see fees reduced from USD 10,000 to USD 5,000 and the annual licence renewal fees for the same category from USD 8,000 to USD 5,000.
Fees for the retail category have also been significantly reduced, with new registration fees cut by two-thirds from USD 6,000 to USD 2,000. Licence renewals for the retail category will also see a 50% reduction, bringing the annual renewal fees down to USD 2,000.
The effective date of the revised licensing fees has been set as 1st January 2025 to align with the expiry of the current transition period, which ends on 31st December 2024.
The expansion to Al Reem Island combined with the new fee structure will be a massive step in ADGM’s thriving journey to become the most sought financial center globally.
