The expansion of the Abu Dhabi Global Market (ADGM) to Al Reem Island marks a pivotal shift in the UAE’s regulatory landscape. Under the UAE Cabinet Resolution No. 41 of 2023, ADGM’s jurisdiction has extended beyond Al Maryah Island, bringing Al Reem Island under its common law system. This transformation, effective since April 2023, replaces federal laws with an internationally recognized legal framework and sets the stage for a modern, flexible business environment.
This article provides a comprehensive guide to understanding the implications of this landmark change in the Emirate of Abu Dhabi, the options available for businesses, and how we as a law firm along with other entities can navigate the transition.
Why ADGM Expanded to Al Reem Island
The primary driver for ADGM’s expansion was the growing demand for office space within the ADGM region. With Al Maryah Island nearing full occupancy at 99%, businesses faced challenges securing mandatory office spaces for incorporation within ADGM. The extension to Al Reem Island addresses this need while offering businesses access to ADGM’s robust regulatory framework.
This blog is a part of our General Corporate and Commercial Advisory Services
Key Changes for Businesses on Al Reem Island
Transition to ADGM’s Legal Framework
The introduction of ADGM’s common law system on Al Reem Island is a rare instance of a near-instantaneous legal system shift. Companies operating on the island now have until 31 December 2024, to align with ADGM’s framework. This change offers businesses the benefits of a globally recognized system, including streamlined dispute resolution and modern corporate governance standards.
Options for Businesses on Al Reem Island
For Existing Businesses
Businesses established under the Department of Economic Development (DED) framework have two options:
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- Transition to ADGM: Companies can migrate to ADGM by filing a continuation application with the ADGM Registration Authority. This involves obtaining ADGM visas, revising employment contracts, and adhering to ADGM Companies Regulations 2020. Post-transition, these businesses will no longer be governed by the DED framework.
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- Relocate to Abu Dhabi Mainland: Businesses can choose to remain under the DED framework by relocating to the mainland and securing a physical office space outside Al Reem Island. This option requires compliance with the UAE Federal and Abu Dhabi local regulations.
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- Exemption: Branch companies cannot continue into ADGM. They must cancel their existing licenses and register as new branches within ADGM.
For New Applicants
The DED ceased issuing new commercial licenses for companies that have their registered address at Al Reem Island starting from October 30, 2023. New businesses situated in Al Reem Island must now obtain a commercial license through ADGM, adhering to its incorporation rules and regulations.
Challenges and Considerations for Businesses
Legal and Operational Adjustments
Transitioning businesses must address several critical factors, including:
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- Revising employment contracts to align with the ADGM Employment Regulations 2019 (as amended).
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- Existing visas and IDs will be linked automatically by ICP to the ADGM issued license and do not need to be cancelled.
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- Navigating activity limitations under ADGM’s permitted business categories.
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- Managing dual licenses for operations spanning ADGM and the mainland.
Regulatory Approvals
Businesses in specialized sectors such as finance may require third-party approvals, including:
Cost Implications
The transition may increase operational costs, including office relocation, licensing fees, and visa adjustments. However, ADGM’s revised fee structure for non-financial and retail entities, effective January 1, 2025, offers significant cost reductions, making it more attractive for businesses.
Impact on Law Firms
The transition presents unique challenges for law firms, as ADGM’s business activity requirements for “legal consultancy” demand:
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- At least eight partners.
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- A minimum of 25 qualified legal professionals employed in other jurisdictions.
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- Eight years of operation since inception.
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- Professional indemnity insurance extendable to ADGM offices.
Individual practitioners are not eligible, and many established firms may face hurdles meeting these criteria.
Support from ADGM
ADGM has actively facilitated the transition with:
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- Workshops and Information Sessions: Addressing licensing, regulatory changes, and operational requirements.
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- Community Gatherings: Offering updates on critical topics such as fees and compliance processes.
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- Dedicated Assistance Centers: Kiosks at Shams Boutik Mall and Tamouh Tower provide direct support.
Additionally, ADGM introduced an incentive program waiving incorporation fees for businesses completing their licensing by October 31, 2024. This initiative has driven significant migration to ADGM.
Advantages of ADGM’s Expansion
The shift to ADGM offers businesses access to a common law framework, enhanced dispute resolution mechanisms, and a globally recognized regulatory environment. ADGM’s efforts, including fee reductions for non-financial and retail entities, position it as a premier global business hub.
The Path Forward
As the December 31, 2024, deadline approaches, businesses on Al Reem Island must act promptly to ensure compliance. Planning is key to minimizing disruption, whether transitioning to ADGM or relocating to the mainland.
ADGM’s expansion and new fee structure reinforce its vision of becoming a globally sought-after financial center. For businesses and law firms navigating this transformation, understanding the implications and opportunities is critical for long-term success.
