The Essentials of Regulated Business Setup in the UAE

With the many free zones operating throughout the UAE and its seven emirates, and the continuing and growing inflow of people wishing to live and work in the UAE, it is important to pay careful attention to the need for regulatory compliance.

This includes ensuring proper registration with correct licences, whilst being mindful of both the benefits of such free zones as well as any federal requirements that may be relevant.

The changing nature of free zones

As free zones evolve, they are broadening their appeal to beyond the historical business-cluster approach and related support services.

Many are now focussed on providing attractive amenities and locations, while others are perhaps more focussed solely on costs.

As a result, the terminology that can appear on licences can be confusing. It may differ from one zone to another, and also between those in free zones and those relevant in mainland UAE. Some terms may also appear quite open to interpretation in ways that may not be intended.

Aligning business objectives with setup strategy

The key in this respect is to step back and focus on what the business objectives are behind setting-up a new establishment.

Beneficial tax treatment and the speed and ease of establishment are understandably key objectives, but care needs to be taken to assess the underpinning business activity that is supporting a firm’s revenue-raising activities.

Financial vs non-financial free zones

Another key factor to keep in mind is that, whilst there may be more than 40 or so free zones, there are only two financial free zones in the UAE — the DIFC in Dubai and the ADGM in Abu Dhabi.

In these zones, the federal jurisdiction of the UAE Central Bank (CB) and the UAE Securities & Commodities Authority (SCA) have been disapplied, under the UAE Financial Free Zone of 2004.

In their place these two centres have their own legislative bodies that are responsible for the activities within or from the centres, including the operation of financial services regulators.

Key considerations for financial services providers

Conversely, non-financial free zones do not have financial services regulators, and the relevant free zone authorities are not set-up to regulate financial services. Nor do they have the authority to do so, as UAE financial services legislation is not disapplied in these centres.

As such, entities within them need to have regard to UAE SCA or CB requirements – which typically require a presence on the UAE mainland to provide financial services to UAE residents.

In other words, the non-financial free zones are not structured or equipped to support participants engaged in financial services.

Terminology concerning registration or licensing might sometimes suggest a broader scope—particularly where words like “consultation” or “investment” are used—but this can be misleading and open to unintended interpretation.

What does this mean in practice when setting up a company in the UAE?

In practice, firms need to be mindful of how the SCA defines financial service activities.

The SCA provides licences for activities involving, amongst other things:

• Financial Consultations

• Promotion

• Introducing

At the lower end of the SCA’s prudential licensing scale, these activities fall under the broader category of “Arrangement and Advice”.  

A key point to note is that “Arrangement and Advice” can constitute either:

• Promotion – where a financial investment or product is being promoted, or

• Introducing – where one person is introduced to another for the purpose of a financial service being provided to the introduced person by the person they are introduced to.

Further up the SCA’s prudential licensing scale are activities such as:

• Managing securities portfolios

• Managing investment funds investments

• Administrative services for investment funds

Anecdotally, some businesses operate on the basis that they are private companies with private shareholders, investing in a variety of underlying assets. Whilst this is a perfectly legitimate structure, each case needs to be assessed on its own merits.

However, when a company begins to take on the characteristics of a collective investment scheme or fund, additional regulatory considerations may apply. This can occur, for example, when investors are able to exit their investment by transferring it to another or a new shareholder or unit holder.

The price at the time of exit is typically based on the fluctuating value of the company’s underlying investments.

In such cases, the company may be viewed as operating or managing a collective investment scheme. This brings the activity within the scope of the SCA and introduces a requirement to be regulated accordingly.

The risks of operating in grey zones when obtaining UAE business licencing

The risks of undertaking regulated activities without realising it—or without having fully considered the regulatory requirements in advance—are many and varied. These may include one or more of the following:

• Unenforceability of any investment or client agreements.

• Risk of complaints to the SCA from customers (including demands for financial redress or compensation) being upheld.

• Risks of complaints made via UAE courts where it is considered that a firm was not authorised when it should have been.

• Risk that, due to a lack of regulatory oversight where regulation should have been sought, contraventions of UAE Federal AML legislation may have occurred – which then becomes a criminal law matter.

• Breaches of such laws potentially also resulting in breaches of other UAE federal laws, including sanctions, anti-bribery, and corruption requirements.

What should be done to ensure proper licencing in the UAE?

• Assess your activities and whether you might be providing a financial service, or otherwise operating at the borderline of requiring regulation.

• When operating near the borderline, understand where the red lines are.

• Take advice from compliance advisors to ensure you remain on the right side of not requiring regulation – or to confirm where regulation is required.

• Embrace regulation as a solution that can support and grow your business successfully.

Costs of regulated business licences do not need to be high when setting up in the UAE

By weighing the pros and cons of providing services from different locations—such as the DIFC, ADGM, or the UAE mainland—we can help you optimise both your costs and regulatory capital.

Outsourcing various roles can also enable you to get up and running without the fixed overheads of permanent or full-time staff. These roles can include General Counsels, Independent Directors, Compliance Officers, MLROs, and Finance Officers.

Fine-tuning your business plans in the right way and in the right location can lead to economies in relation to regulatory capital. It can also help to optimise your regulatory compliance obligations by targeting your endeavours (such as the types of clients you serve or products you offer) in a way that can reduce or minimise the impact of those requirements.

How can Sanctuary help?

It’s important to pick the right local partners to advise your business in the UAE. Sanctuary Corporate Services offers a seamless mix of advisory, compliance, general corporate services, and setup support.

Each proposal is tailored to your specific requirements, ensuring you receive these services in the most efficient and effective way – allowing you to concentrate on developing and growing your business successfully.

If you require assistance with regulated business services in the UAE, then please get in touch via this contact form, or by emailing ask@sanctuary.ae, and one of our dedicated consultants will assist you.