UNITED ARAB EMIRATES: An Introduction to Regulatory: Government & Public Affairs

Seven Emirates, One Federation

The United Arab Emirates (UAE), formed in 1971, is a federation of seven emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Umm Al Quwain and Ras Al Khaimah. While each retained its own cultural and economic characteristics, they united under a temporary constitution that outlined a framework for federal governance and collaboration. In 1996, the temporary constitution became permanent.

Over the decades, the UAE has continually developed its legal system, implementing legislative, judicial and regulatory advancements that have transformed the country into a prominent global business hub, providing invaluable opportunities for a diversified economy that promotes both domestic and foreign investment.

The constitution of the UAE establishes both federal and emirate-level competencies, ensuring clarity, consistency and separation of powers between the federation and the emirates themselves. Articles 120, 121 and 122 of the UAE Constitution outline the matters that fall within the legislative and executive jurisdiction of the federation, as well as those within the jurisdiction of the individual emirates.

The federal government holds exclusive authority in areas deemed to be of national importance, such as foreign policy, defence, security, education, major commercial legislation, citizenship, air navigation and currency. This structure centralises decision-making on crucial matters and preserves a cohesive national identity. Each emirate maintains the right to enact laws on issues that concern its specific circumstances, such as municipal regulations, licensing of commercial activities and regulation of local economic initiatives. This preserves each emirate’s distinct character while contributing to the collective interest of the federation.

Article 151 of the UAE Constitution establishes the supremacy of the constitution, stating that it prevails over federal and emirate-level legislation, regulations and decisions. In cases of conflict between federal and emirate-level legislation, the inconsistent part of the emirate-level legislation is rendered null and void to the extent necessary to remove the inconsistency. Disputes regarding such conflicts are referred to the Federal Supreme Court for resolution.

Civil law foundations and global Influence

The UAE’s legal landscape largely follows a civil law model, supplemented by international best practices. Over time, multiple influences, ranging from regional to global commercial norms, have impacted the UAE legal system.

Central to the UAE’s economic success is the establishment of free zones, which operate under bespoke business-friendly regulatory frameworks bolstering the UAE’s position as a global hub for businesses. These zones were formalised through various federal and emirate-level laws, allowing them to offer: (a) emirate-level tax incentives; (b) 100% foreign ownership; and (c) independent regulatory authority. Further, two major financial free zones have been established – the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) – which adopt common-law principles drawn primarily from English law. A Financial Free Zone is defined in Federal Law No 8 of 2004 as an independent jurisdiction within the UAE that is exempt from UAE federal civil and commercial laws, empowering DIFC and ADGM to create their own legal and regulatory frameworks for all civil and commercial matters. As a result, both DIFC and ADGM have their own bespoke regulatory framework and separate common law courts that adjudicate commercial and financial disputes.

As the UAE’s economy has diversified, multiple laws have been introduced or modernised to govern business transactions, corporate governance and commercial contracts. These laws draw on well-established international commercial and legal norms and continue to evolve to meet the expectations of international investors and provide a competitive advantage for foreign investment. Notably, the federal commercial companies law was amended in 2020 to allow 100% foreign ownership in most sectors across the UAE.

Additionally, in the last ten years, the UAE has introduced legislative reforms that strengthen its standing as a global centre for commerce and innovation. Reforms have been introduced in areas such as criminal law, cybercrime, data protection and privacy, labour, bankruptcy, technology, climate and environmental sustainability, fintech, blockchain, foreign direct investment, anti-money laundering and corporate tax. These initiatives align with the UAE’s broader strategy of encouraging foreign investment, nurturing innovation and maintaining a modern regulatory environment to ensure global competitiveness.

Enactment of laws in the UAE

Legislation at federal level is enacted through a clearly defined process aimed at ensuring thorough consultation and alignment with national priorities.

New laws are typically drafted under the direction of relevant ministries or federal authorities, and the draft is forwarded to the UAE Cabinet for initial approval. The Federal National Council (FNC), a consultative assembly comprising representatives from each emirate, examines draft laws, discusses their implications and proposes amendments. While the FNC’s role is advisory, its recommendations can significantly shape the proposed legislation. Once reviewed by the FNC, the draft law moves to the Federal Supreme Council (composed of the rulers of the seven emirates) for final endorsement. The President of the UAE signs the law, after which it is published in the Official Gazette. In urgent or exceptional circumstances, the UAE constitution allows the President, following consultation with the Cabinet, and with the endorsement of the Federal Supreme Council, to issue a Federal Decree-Law. Although it bypasses some steps of the standard legislative process for expediency, any such decree is presented to the FNC during its next session. Federal Decree-Laws carry the same legal force as other federal legislation once enacted.

The UAE's commitment to regional and international standards

The UAE is an active member of the Gulf Cooperation Council (GCC), which facilitates economic, political and legislative cooperation among its member states. Harmonisation efforts often focus on standardising customs tariffs and VAT regulations to streamline cross-border commerce. The GCC has also developed a framework for the mutual recognition and enforcement of judicial rulings, making it easier for businesses to operate seamlessly within the GCC countries.

The UAE has entered into over 140 double taxation treaties to cooperate with other countries on tax matters. Additionally, it has adopted the Common Reporting Standard (CRS), an internationally agreed standard developed by the OECD to enhance tax transparency and combat tax evasion. By implementing the CRS, the UAE facilitates the automatic exchange of financial account information with other jurisdictions, promoting global tax compliance and fostering trust in its financial system.

The UAE has also entered into numerous bilateral investment treaties (BITs), which aim to attract and safeguard foreign investments. These treaties provide protections such as fair and equitable treatment, safeguards against expropriation and mechanisms for resolving disputes between investors and states. BITs play a critical role in creating a stable investment climate and enhancing the UAE's reputation as a reliable global investment hub.

The above underscores the UAE’s commitment to aligning its legal environment with broader regional and international objectives while retaining its own legislative autonomy.

A legacy of adaptation and growth

In just over 50 years, the UAE has established a legal system that thrives on balancing local aspirations with global best practices. From the temporary constitution’s founding principles to the rise of free zones and specialised courts, the country’s ability to evolve has been crucial to its economic and reputational success.

Through its modernised regulatory framework and the strategic development of free zones, the UAE has cemented itself as a leading destination for international enterprises. Recent reforms in corporate governance, data privacy, taxation, environmental and labour regulations further underscore its commitment to staying at the forefront of global legal and commercial developments.

By continually modernising its legal ecosystem while respecting its federal framework and collaborating closely with GCC countries and international partners, the UAE remains well-positioned to support investors, entrepreneurs and global companies seeking a stable and forward-looking environment. This synergy of tradition, innovation, regional and international cooperation ensures that the UAE will remain a prominent global business hub for decades to come.