ADGM's Al Reem Island Expansion: Considerations For Existing Businesses



Following the enactment of UAE Cabinet Resolution No. 41 of 2023 on 24 April 2023, Abu Dhabi Global Market (ADGM) is set to expand its jurisdiction to Al Reem Island.
United Arab Emirates Corporate/Commercial Law
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Following the enactment of UAE Cabinet Resolution No. 41 of 2023 on 24 April 2023, Abu Dhabi Global Market (ADGM) is set to expand its jurisdiction to Al Reem Island. ADGM has taken various steps to support existing businesses on Al Reem Island, which have until 31 December 2024 to transition to ADGM's legal and regulatory framework. With ADGM working closely with other government bodies including the Abu Dhabi Department of Economic Development (ADDED), the Department of Municipalities and Transport (DMT), the Federal Authority for Identity, Citizenship, Customs and Port Security (ICP) and the Ministry of Human Resources and Emiratisation (MOHRE), this transition is expected to be hassle-free and seamless for most businesses. If a business operating on Al Reem Island chooses to transition to ADGM, it could do so by applying for a new registration or by choosing to continue its existing registration by migrating to ADGM. ADGM has also announced that certain businesses which opt to transition before 31 October 2024 will not be required to pay ADGM's registration fee.

Despite ADGM's continued efforts for a smooth transition for existing businesses on Al Reem Island, some businesses will have more to consider than others. We believe that the following businesses will need further assessment of their situation before considering their next steps, so that a transition to ADGM will align with their business needs:

  • businesses requiring other third party/external approvals for their operations;
  • businesses with operations outside ADGM; and
  • businesses with key customers, where the customer contract requires an onshore entity.

Businesses requiring other third party/external approvals for their operations

Certain businesses and professions in the UAE require additional third party/external approvals (in addition to ADDED licences). For example, oil and gas field service providers or construction and consultancy companies to whom classification requirements are applicable may not be able to simply transition their existing licensed activities to ADGM.

Businesses with financial activities that are regulated by the Central Bank or the Emirates Security & Commodities Authority may also be affected, as under ADGM they will be required to be regulated and licensed by the Financial Services Regulatory Authority (FSRA) in ADGM. These businesses will need to liaise with the FSRA at the earliest opportunity to ensure a smooth transition.

ADGM has published a list of licensed activities that contains a comparison between ADDED list of business activities and ADGM list of activities. Businesses that are unable to find a close match to their current activities in ADGM's list, or whose licensed activities are not available in ADGM, will also not be able to transition to ADGM and will need further help or guidance on the future course of action.

Businesses with operations outside ADGM

Entities incorporated within a freezone such as ADGM are not allowed to conduct business outside the freezone in mainland/onshore UAE. Accordingly, it may not be possible for existing businesses on Al Reem Island to carry on their business and operations in onshore Abu Dhabi after transitioning to ADGM. These businesses may be able to benefit from the dual licensing regime agreed between ADDED and ADGM which allows ADGM companies to establish branches and subsidiaries in onshore Abu Dhabi without requiring a place of residence/office outside ADGM. Alternatively, depending on the nature of licensed activities, existing businesses on Al Reem Island may also consider establishing a separate entity in onshore Abu Dhabi.

Businesses with key customers, where the customer contract requires an onshore entity

As a prerequisite for working with certain governmental entities in Abu Dhabi, it may be required that a business is incorporated onshore and has obtained a licence from ADDED. In some cases, this may not be a general requirement to work with the governmental entity but may form part of the specific project/tender documents. Businesses whose key customers are governmental entities should assess their contractual restrictions before deciding to transition to ADGM.

Other key considerations

MOHRE employment contracts for existing employees, governed by the UAE Labour Law, will need to be replaced with new ADGM employment contracts, governed by ADGM employment regulations which will govern the parties' employment relationship moving forward. Furthermore, the internal policies may need to be updated in line with the ADGM employment regulations. Since ADGM's employee visa quota is different than that of the MOHRE, the transition may also have an effect on the number of employee visas permitted for the existing lease. In addition to the above, businesses on Al Reem Island should keep in mind that, going forward, yearly ADGM costs are likely to be higher than those for an onshore entity.

For some businesses, it may be that relocation outside Al Reem Island is the most appropriate option. However, this may require early termination of the lease agreement. There may also be financial implications if capital expenditure has been incurred during the fit-out of the offices.

If you are an existing business on Al Reem Island that may fall into any of the above categories, you will need to consider the next steps for your business now and be prepared for the incoming transition by 31 December 2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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