Common law to re-boost free zones appeal

Dubai's decision to explore implementing common law within its free zones is expected to be a win-win scenario for new investors and businesses already in the emirate, according to experts.

Unifying the applicable law across free zones by adopting new legislation is an investor-friendly decision that will offer a boost to free zones in the city, they said.

The Dubai government is studying the introduction of a common law in free zones to enhance the city’s business environment and boost its economic appeal and efficiency, the Dubai Media Office said on Tuesday.

The initiative supports the economic objectives outlined in the Dubai Economic Agenda D33. A key goal of the Dubai Economic Agenda (D33) is to double the size of Dubai's economy over the next decade and to consolidate its position among the top three global cities. Dubai Economic Agenda D33 includes 100 transformational projects.

The UAE allowed 100 per cent foreign ownership of companies in the mainland, which previously was allowed in the free zones. This was one of the major incentives for foreign companies to set up operations in the free zones.

Hani Naja, Corporate & Commercial Partner at Baker McKenzie, said most free zones in Dubai, with the exception of the Dubai International Financial Centre (DIFC), which has a comprehensive legislative system, are currently governed by their own regulations in addition to Dubai and UAE Federal laws. This can create some resistance from foreign investors who may not be used to these laws or to the way they overlap.

Naja said there are two indirect benefits of the common law. Firstly, having a common legislative system for all free zones makes it a level playing field at least on the legislative/regulatory front. Secondly, it will re-boost the attractiveness of free zones which were somewhat impacted by the relaxation of foreign direct investment for onshore companies.

Harikishan Rankawat, chairman of The Institute of Chartered Accountants of India (ICAI) – Dubai Chapter, said at present, Dubai has several free zones, each with its own Independent Free Zone Authority (FZA) responsible for governing and regulating activities within the zone. They typically have their own rules and regulations, distinct from those in the mainland.

“Common law provides a well-established and widely recognised legal system with a rich history of precedents and case law. This move will not only be attractive to existing businesses operating in the free zone, but it will also attract more foreign investment and businesses looking for a familiar legal environment. This approach will promote consistency in legal decisions and reduce ambiguity in interpreting laws in various free zones in line with laws of the mainland,” he said.