What the ADGM's expansion into Al Reem Island means for businesses

A transition period is currently in effect, but when that ends on 31 December 2024 businesses operating from Al Reem Island will have to align with the different legal and regulatory framework that applies in the ‘offshore’ ADGM – they are currently subject to ‘onshore’ regulation in the UAE.

Here we look in more detail at the implications of the expansion of the ADGM’s jurisdiction for businesses.

Transition options

There are two main options for businesses to transition into the ADGM. Thes are:

• Continuation/redomiciliation, through which the existing entity will be continued into the ADGM and will maintain its existing incorporation date. If this option is pursued, consideration will need to be given to contracts, employees and licences. This option is not available to branches.
• New registration, which involves setting up a new entity in the ADGM – any assets, including employees and contracts, will need to be transferred to the new entity.

In both instances, companies will need to check that their operations can be undertaken through an ADGM company. Whilst the ADGM has expanded the list of activities businesses can perform in its jurisdiction, an entity may need to maintain an onshore licence.

ADGM has announced that businesses moving into the ADGM before 31 October 2024 will be exempt from paying ADGM's registration fee. This incentive aims to facilitate a hassle-free and cost-effective transition for businesses.

Dual licensing regime

Companies may qualify for a dual licence. Under the dual licence regime, eligible ADGM entities may continue to service businesses in onshore Abu Dhabi without maintaining an office presence on the mainland. This may not be suitable for companies that are required to have employees onshore.

Other core considerations

Businesses with financial activities regulated by the Central Bank or the Emirates Security & Commodities Authority will now need to be regulated and licensed by the Financial Services Regulatory Authority (FSRA) in the ADGM. These businesses should liaise with the FSRA early to ensure a smooth transition.

Onshore employment contracts for existing employees will need to be replaced with new ADGM employment contracts governed by ADGM employment regulations. Internal policies may also need to be updated to align with ADGM regulations. The transition may affect the number of employee visas permitted for the existing lease, as ADGM's employee visa quota differs from that onshore.

Businesses should be aware that yearly ADGM costs may be higher than those for an onshore entity. For some, relocating outside Al Reem Island may be more appropriate, though this may involve early lease termination and have financial implications related to capital expenditure for office fitouts.

Businesses that have important governmental entity customers should assess their contractual restrictions before deciding to transition to ADGM. In some cases, it may be required that a business is incorporated onshore and has obtained a license from the Abu Dhabi Department of Economic Development (DED) to work with governmental entities.

Co-written by Ma’ali Sawalha of Pinsent Masons.