FREE ZONE TARGETS IN DUBAI
Many Dubai acquisition targets are licensed in a free zone rather than onshore. A company incorporated in the Dubai International Financial Centre (DIFC) and one registered with DMCC, Dubai Airport Freezone or Dubai Science Park are subject to different company, employment and data protection regimes and, in many cases, to different courts, yet both remain subject to federal law in important respects. How do diligence, documentation and completion differ where the target is a DIFC company?
THE DIFC AND OTHER DUBAI FREE ZONES
Federal law applies throughout the UAE, including in its free zones, except where federal law itself gives way to free zone legislation. The Commercial Companies Law, for example, does not apply to free zone companies on matters for which the free zone’s own authority makes special provision. In most Dubai free zones, the authority’s regulations cover incorporation, shareholding and licensing, while federal law governs much of the rest, including contracts and employment.
The DIFC differs in the extent and the legal basis of its independence. As a financial free zone, it is exempt by federal law from federal civil and commercial legislation, and it has enacted its own laws on companies, contracts, employment, data protection and security, administered by its own Registrar of Companies, courts and independent financial regulator, the Dubai Financial Services Authority (DFSA). Other federal laws continue to apply within the DIFC, including the anti-money laundering legislation, the Corporate Tax Law and the federal law on the use of information and communication technology in health fields.
SHARE TRANSFERS
A transfer of shares in a DIFC company must comply with the DIFC Companies Law and the company’s articles of association, and the company must notify the Registrar within 30 days. The process is predictable, although pre-emption rights and beneficial ownership filings still require review.
In other free zones, the free zone authority controls the transfer. Under the DMCC Company Regulations, for example, a share transfer takes effect only when the Registrar registers it. Each authority’s filing requirements and practice should be confirmed early, as they may not reflect the agreed commercial terms, and the long-stop date should allow for the authority’s timetable.
REGULATORY APPROVALS AND CHANGE OF CONTROL
Where the target is a DFSA-authorised firm incorporated in the DIFC, a person may not become a controller (generally, by holding 10 per cent or more of the shares or voting rights) or increase its holding to 30 or 50 per cent or more without the DFSA’s prior written approval. The DFSA will ordinarily decide within 90 days of a complete application, and an approval is valid for one year. The approval timetable often determines the completion date.
Where the authorised firm is a branch of a foreign entity, a prospective controller need only notify the DFSA before the acquisition, so the target’s structure affects the timetable. Acquiring control of a DIFC-incorporated firm without the DFSA’s prior approval is a breach of the DFSA’s rules, and the transaction documents should make that approval a condition to completion.
EMPLOYMENT AND DATA PROTECTION
Under the DIFC Employment Law, employers make monthly contributions to a qualifying savings scheme in place of end-of-service gratuity. In other Dubai free zones, the federal Labour Law applies together with the authority’s employment regulations, and gratuity generally accrues as an unfunded liability. Buyers familiar with the DIFC regime may underestimate that liability when negotiating price and indemnities.
The DIFC Data Protection Law is closely modelled on the GDPR and, since its 2025 amendments, gives individuals a right to claim compensation for damage caused by a contravention. Companies in most other Dubai free zones are subject to the federal Personal Data Protection Law and to sector-specific rules, such as those governing health data. The scope of diligence and of any remediation differs accordingly.
DISPUTES AND SECURITY
Disputes involving DIFC companies are generally heard by the DIFC Courts, which conduct proceedings in English. Under the DIFC Law of Security, enacted in 2024, security over movable assets is perfected by registering a financing statement in the DIFC Security Registry, and priority generally follows the order of registration.
Targets in other free zones are subject to the onshore Dubai courts, which conduct proceedings in Arabic subject to limited exceptions, unless the parties have agreed to arbitration or to the jurisdiction of the DIFC Courts. Share security follows each authority’s own procedure (in DMCC, it is perfected on entry in the Registrar’s Security Register), and an English law share purchase agreement must still be implemented through local procedures that may not reflect its terms.
CORPORATE RECORDS AND BENEFICIAL OWNERSHIP
The DIFC Registrar maintains a public register, accessible on the DIFC website, that discloses each company’s shareholders and directors. A buyer can therefore check the target’s ownership and board against the public record at the outset, although the register does not replace a review of the company’s own statutory books and filing history.
The federal beneficial ownership rules expressly exclude financial free zones. A DIFC company therefore reports its beneficial owners under the DIFC’s own regulations, while a company in DMCC or Dubai Airport Freezone is subject to the federal regime and its penalties.
KEY TAKEAWAYS
A DIFC acquisition will be familiar to buyers used to English law transactions, but it brings DFSA approvals and separate employment, data protection and security regimes, while an acquisition elsewhere in Dubai depends more heavily on free zone authority practice and federal law. Buyers should establish the target’s legal and regulatory position before agreeing heads of terms. Engaging M&A advisers experienced in cross-border transactions, who understand how acquisitions in the UAE, and in the DIFC in particular, differ from those elsewhere, is therefore important.
Authors: Shantanu Mukherjee
