Chapter 2
UAE’s Legal Landscape
Overview of the legal framework
The UAE’s legal system is a unique blend of civil code principles, influenced by Egyptian and French law, and Islamic Shari’ah. The primary sources of law include Islamic Shari’ah, the UAE Constitution, Federal and Emirate laws, and customs and practices. This system reflects the UAE’s balance of traditional Islamic principles and modern legal structures, ensuring political stability and preserving a distinct national identity.
The Constitution plays a pivotal role in defining the division of legislative power between the Federal Government and the individual Emirates.
While Federal laws hold supremacy, the Emirates retain legislative autonomy in areas not exclusively governed by the Federation, such as real estate regulations. The Federal Government exercises control over key legal areas like taxation, civil, commercial, corporate, and penal matters.
The UAE’s federal structure allows each Emirate to participate in civil administration through the Supreme Council and the Cabinet, where key decisions, such as Federal budget approval and leadership appointments, are made by consensus.
The UAE operates under a codified legal system without a formal system of precedent. However, higher court judgments often have a persuasive effect on lower courts. The civil law system governs most civil and commercial matters, while property law is under the jurisdiction of individual Emirates.
This sophisticated legal framework, combined with the UAE’s ongoing economic diversification efforts, has contributed to the country’s stability, progress, and prosperity.
MAINLAND AND FREE ZONES
Entrepreneurs in the UAE have the option to establish their businesses in either the mainland or one of the over 45 free zones, depending on their operational needs and objectives. Setting up in the mainland provides greater market access, allowing companies to engage directly with the local market and government entities. This route is ideal for businesses looking to secure government contracts or expand their presence within the UAE.
Conversely, free zones offer distinct advantages, including industry-focused environments and enhanced networking opportunities. The UAE’s free zones are categorized into financial and economic sectors, creating an attractive landscape for crypto businesses. They provide benefits such as 100% foreign ownership, some tax incentives, and simplified licensing. However, it’s important to note that companies registered in these zones are generally restricted from conducting business directly within the mainland UAE.
Choosing the right setup depends on the nature of the business, target audience, and long-term goals.
FINANCIAL FREE ZONES
The UAE’s two key financial free zones, Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), are particularly attractive due to their regulatory independence. Both DIFC and ADGM operate under a common law framework. These free zones have established separate legal systems, with proceedings conducted in English, which enhances their appeal.
ADGM, in particular, has been a leader in regulating digital assets, having launched its Digital Asset Framework as early as 2018. This framework provides clear regulations for the trading and custody of digital assets, which include cryptocurrencies and tokens.
Both DIFC and ADGM are regulated by specific federal laws, such as the UAE Penal Code, but otherwise have significant regulatory freedom.
ECONOMIC FREE ZONES
On the other hand, economic free zones across the UAE provide a broader base for blockchain and crypto-related industries, particularly in areas such as mining, crypto hardware manufacturing, and blockchain-based logistics. These zones adhere to UAE federal laws but offer some tax exemptions, simplified incorporation procedures, and access to specialised infrastructure, making them ideal for tech-driven crypto startups.
