Jurisdictions
Mainland, Free Zone, DIFC or Arbitration: Which Law Governs Your Business in Dubai
· 11 min read
Author: Vinícius Cavalcanti · Reviewer: Nathan Gomes
Key points
- Dubai has more than one legal system. Mainland companies and most free zone companies live under UAE civil law and the Arabic-language local courts, while the DIFC (and ADGM in Abu Dhabi) run on common law with English-language courts.
- A free zone licence does not change the law of your contracts. Outside the two financial free zones, civil and commercial disputes go to the onshore courts under UAE law unless the parties chose arbitration or the DIFC Courts.
- Any business can opt into the DIFC Courts by a clear written clause, even with no link to the DIFC, and choosing the court does not fix the governing law.
- DIAC is Dubai's main arbitration centre. Since 2021 it has absorbed the former DIFC-LCIA, its 2022 Rules make the DIFC the default seat, and its awards benefit from the New York Convention, which both the UAE and the United States have joined.
- For an American founder, the governing-law clause, the forum and the seat matter as much as the licence: they decide the language of a dispute, the judges, the remedies and where a decision can be enforced.
Which law governs a business in Dubai?
It depends on where the company is set up and what its contracts say. A mainland company, and in principle a company in a non-financial free zone such as DMCC, JAFZA or IFZA, is governed by UAE federal and Dubai law, a civil-law system in which Islamic Sharia is a main source of legislation, and its disputes go to the Dubai Courts in Arabic. A company in the Dubai International Financial Centre (DIFC) is governed by the DIFC's own common-law-based statutes and the English-language DIFC Courts. On top of that, the parties to a contract can choose a governing law, opt into the DIFC Courts or agree to arbitration, most often at the Dubai International Arbitration Centre (DIAC). The licence decides the starting point; the contract decides most of the rest.
Most guides to Dubai stop at the licence: mainland, free zone or offshore, cost, visas and ownership. Our guide to opening a company in Dubai covers those choices. This article covers the question that comes up later, usually when a client does not pay, a partner leaves or a founder dies: which rules apply, which judges decide and how the decision is enforced.
One city, three legal layers
The UAE is a federation of seven emirates. Federal laws cover most civil and commercial matters across the country, Dubai issues its own local laws and runs its own court system, and the Constitution allows financial free zones to be carved out of federal civil and commercial law. The result is a city where two companies a few kilometres apart can be subject to different contract law, different courts and different languages.
| Where the company is | Civil and commercial law | Default courts | Language | Typical use |
|---|---|---|---|---|
| Mainland Dubai | UAE federal and Dubai law (civil law, Sharia as a source) | Dubai Courts | Arabic | Trading with UAE customers, government contracts, retail |
| Non-financial free zone (DMCC, JAFZA, IFZA and others) | UAE federal and Dubai law, plus free zone regulations | Dubai Courts | Arabic | Trading, services, logistics, international sales |
| DIFC | DIFC statutes on a common-law base | DIFC Courts | English | Financial services, holdings, family offices, foundations |
| ADGM (Abu Dhabi) | English common law and equity applied directly, plus ADGM statutes | ADGM Courts | English | Funds, holdings, financial services, foundations |
Mainland Dubai: UAE civil law
Article 7 of the UAE Constitution makes Islam the official religion and Islamic Sharia a main source of legislation. In commercial practice that does not mean Sharia courts deciding business disputes. It means a civil-law system built on written codes, with Sharia principles shaping certain areas, guiding the judge where the codes are silent and governing personal status for Muslims.
The core commercial texts are federal. The Commercial Companies Law (Federal Decree-Law No. 32 of 2021) governs mainland companies, and the Civil Transactions Law sets the general rules for contracts, obligations and liability. That code changed this year: Federal Decree-Law No. 25 of 2025 replaced the 1985 Civil Transactions Law with effect from 1 June 2026. Contracts concluded before that date generally remain under the old code, so a company with older agreements may be dealing with two versions of UAE contract law at once.
Disputes go to the Dubai Courts, Dubai's local judiciary, which apply federal procedural law. Under the Civil Procedure Law (Federal Decree-Law No. 42 of 2022) Arabic remains the language of the courts: pleadings, hearings and judgments are in Arabic, foreign-language documents must be translated by a certified legal translator, and non-Arabic speakers are heard through an interpreter. The same law allows English to be designated for certain courts, but an American party should plan on Arabic.
Personal status is where religion matters most. Muslims are governed by the federal Personal Status Law (Federal Decree-Law No. 41 of 2024, in force since 15 April 2025). Non-Muslims fall under the Civil Personal Status Law (Federal Decree-Law No. 41 of 2022, in force since 1 February 2023), which covers marriage, divorce, custody and inheritance and lets non-Muslim foreigners ask for the law of their home country to apply. For a business owner, this decides what happens to the shares of a mainland company on death.
Free zones: their own regulator, the same civil law
Dubai has more than twenty free zones, including DMCC, JAFZA, Dubai Silicon Oasis and IFZA. Each has an authority that licenses companies, keeps the company register and issues regulations on companies, leasing and employment inside the zone. That is why free zone companies can be 100% foreign-owned and have their own company rules.
A free zone licence does not, however, take the company out of UAE civil and commercial law. Federal Law No. 8 of 2004 exempts only financial free zones from federal civil and commercial legislation. A DMCC or JAFZA company that signs a supply contract, a lease or a shareholders' agreement is, by default, under UAE law, and a dispute goes to the onshore Dubai Courts in Arabic unless the parties agreed to arbitration or to the DIFC Courts. Some free zones have signed cooperation agreements that give their companies access to DIFC Courts services, but these do not change the default rule for every contract.
This is the most common misunderstanding we see among American founders: assuming that an English-language free zone, an English-language licence and English-language contracts mean English or common law. They do not, unless the contract says so and the forum will apply it.
The DIFC: a common-law jurisdiction inside Dubai
Federal Law No. 8 of 2004 allows financial free zones to be exempt from federal civil and commercial laws, although UAE criminal law, including anti-money-laundering law, still applies. The DIFC, created in 2004, used that exemption to build its own legal system: DIFC statutes on contracts, obligations, companies, employment, trusts, foundations, insolvency and arbitration, largely modelled on English and other common-law sources.
Gaps are filled in a common-law way. Under the DIFC Law on the Application of Civil and Commercial Laws (DIFC Law No. 3 of 2004), as amended in November 2024, DIFC law is the final step in the choice-of-law sequence, and the DIFC Courts can draw on the common law and equity of England and Wales, and of other common-law jurisdictions, where DIFC statutes do not exclude them.
The DIFC Courts were reorganised by Dubai Law No. 2 of 2025, which came into force on 14 March 2025 and replaced the 2004 courts law. They sit in English, follow common-law procedure, and include a Court of First Instance, a Court of Appeal and a Small Claims Tribunal. Their judgments can be enforced in onshore Dubai through the Dubai Courts.
The feature that matters most to outsiders is the opt-in. Since 2011, parties with no connection to the DIFC can agree in writing to have their civil and commercial disputes heard by the DIFC Courts. The DIFC Courts state that this route is open to businesses anywhere in the UAE and to international parties. The clause must be clear and express, and choosing the DIFC Courts does not choose the governing law: the court will apply the law the parties selected, whether that is DIFC law, English law, New York law or UAE law.
ADGM: the Abu Dhabi alternative
Abu Dhabi Global Market (ADGM) goes a step further. Its Application of English Law Regulations 2015 make English common law and equity directly applicable, as they develop over time, together with a schedule of English statutes, subject to ADGM's own legislation. The ADGM Courts also sit in English and accept parties who opt in by written agreement. For a group with operations in both emirates, ADGM is a real alternative to the DIFC as a holding or dispute-resolution base.
Arbitration: DIAC and the other centres
Arbitration lets the parties choose the rules, the arbitrators, the language and the seat, and keeps the dispute private. In the UAE it is governed by Federal Law No. 6 of 2018 on Arbitration, amended in 2023 by Federal Decree-Law No. 15 of 2023, while arbitrations seated in the DIFC follow the DIFC Arbitration Law with the DIFC Courts as supervisory court.
DIAC, the Dubai International Arbitration Centre, is the main institution in Dubai. Its position changed in 2021: Dubai Decree No. 34 of 2021 abolished the DIFC Arbitration Institute, which had run the DIFC-LCIA Arbitration Centre, and the Emirates Maritime Arbitration Centre, and transferred their work to DIAC. Contracts that still refer to the DIFC-LCIA should be reviewed; the decree provides for DIAC to take over those agreements, but updating the clause avoids an argument at the worst possible moment.
The DIAC Arbitration Rules 2022 apply to arbitrations started on or after 21 March 2022. Under Article 20.1, if the parties agree neither a seat nor a venue, the initial seat is the DIFC, so DIFC arbitration law and the DIFC Courts supervise the proceedings, although the tribunal can later fix a different seat. A clause should therefore name the seat expressly: DIFC, onshore Dubai or another city.
Abu Dhabi has its own institution. The Abu Dhabi International Arbitration Centre, known as arbitrateAD, replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre in 2024, with new rules in force since 1 February 2024, and ADGM is available as a common-law seat. International institutions such as the ICC and the LCIA can also administer arbitrations seated in the UAE.
| Forum | Language | Who decides | Confidential | Enforcement in the U.S. |
|---|---|---|---|---|
| Dubai Courts (onshore) | Arabic | UAE judges applying UAE law or the chosen law | No | As a foreign judgment, state by state |
| DIFC Courts (default or opt-in) | English | DIFC judges applying common-law procedure | No | As a foreign judgment, state by state |
| ADGM Courts (default or opt-in) | English | ADGM judges applying English common law | No | As a foreign judgment, state by state |
| DIAC arbitration, seated in the DIFC | Chosen by the parties | Arbitrators chosen by or for the parties | Yes, under the rules | Under the New York Convention |
| Arbitration seated onshore (DIAC, arbitrateAD, ICC) | Chosen by the parties | Arbitrators chosen by or for the parties | Yes, under the rules | Under the New York Convention |
Enforcement: why arbitration often wins for Americans
The decisive question for an American founder is often not who decides the dispute, but where the decision can be enforced. The UAE acceded to the 1958 New York Convention in 2006, without the reciprocity reservation, and the United States has been a party since 1970. An award from a properly seated arbitration in Dubai can therefore be enforced in the United States, and a U.S.-seated award can be enforced in the UAE, under a common international framework.
Court judgments travel less easily. The United States and the UAE have no bilateral treaty on the recognition of court judgments, so a U.S. judgment must meet the conditions of Articles 222 to 225 of the UAE Civil Procedure Law, including reciprocity, finality, proper notice, the jurisdiction of the foreign court and compatibility with UAE public order. Enforcement is possible, but less predictable than for an arbitral award, and a UAE judgment faces its own state-by-state recognition process in the United States.
This is why many cross-border contracts with a UAE counterparty use arbitration seated in the DIFC under the DIAC or ICC rules, with English as the language and a clear governing law. The best choice still depends on where the counterparty's assets are, the size of the contract, the cost of arbitration compared with litigation and whether urgent court relief may be needed.
What this means for an American founder
The legal map should be part of the decision on where to set up. A trading or services business selling mainly to UAE customers may be well served by a mainland or free zone company, provided its key contracts include proper dispute clauses. A holding company, a fund, a family investment vehicle or a business with international investors may fit better in the DIFC or ADGM, where company law, courts and language are familiar to common-law lawyers and investors. Our guides to the international holding company for Americans and to choosing between a U.S. LLC or a foreign company cover the U.S. tax side of that choice.
Contracts deserve the same attention as the licence. Every significant agreement with a UAE party should state the governing law, the forum or arbitration institution, the seat, the language and how interim relief will be obtained. Leaving those points out means accepting the onshore default: UAE law, Arabic and the Dubai Courts.
| Point | What to decide |
|---|---|
| Governing law | UAE, DIFC, English, New York or another law, stated expressly |
| Forum | Dubai Courts, DIFC Courts by opt-in, ADGM Courts or arbitration |
| Institution and rules | DIAC, arbitrateAD, ICC or LCIA, and which edition of the rules |
| Seat | DIFC, ADGM, onshore Dubai or another city, named expressly |
| Language | English, Arabic or both, and which version prevails |
| Arbitrators | One or three, and how they are appointed |
| Interim relief | Emergency arbitrator or court measures, and in which court |
| Assets and enforcement | Where the counterparty's assets are and where an award will be enforced |
Succession and asset protection
The legal layer also decides what happens when the founder dies or the family needs to restructure. Shares in a mainland or free zone company and property in Dubai fall within UAE succession rules unless planning is in place. Non-Muslims can register wills with the Dubai Courts or the DIFC Courts under Dubai Law No. 15 of 2017, and the federal Civil Personal Status Law allows them to choose the law of their home country. The DIFC and ADGM also offer foundations and trusts under common-law rules, which families use to hold shares and assets across generations.
These tools interact with U.S. estate tax and reporting, so they need to be designed from both sides. Our guides to international trusts and to the best asset protection jurisdictions explain how they fit into a wider plan, and our guide to Emirates ID and UAE residency covers the residence side.
Bottom line
Dubai is not one legal system but several. Mainland and most free zone companies operate under UAE civil law, with Sharia as a source of legislation, codes in Arabic and the Dubai Courts. The DIFC, like ADGM in Abu Dhabi, offers common-law statutes and English-language courts that any business can choose by contract. DIAC, which absorbed the DIFC-LCIA in 2021, provides arbitration that defaults to a DIFC seat and produces awards enforceable in the United States under the New York Convention.
For an American entrepreneur, the right structure is the one where the licence, the governing law, the forum, the seat and the succession plan all point the same way. Getting those choices right before signing is far cheaper than discovering them in an Arabic-language courtroom after a dispute.
Our Private Advisory Session maps the legal layer of your Dubai structure, reviews your key contracts and dispute clauses, and coordinates the UAE and U.S. sides before you sign.
Sources
- UAE Legislation: Federal Decree-Law No. 25 of 2025 (Civil Transactions Law)
- UAE Ministry of Justice: Federal Law No. 8 of 2004 on Financial Free Zones
- UAE Ministry of Justice: Federal Decree-Law No. 42 of 2022 (Civil Procedure Law)
- UAE Legislation: Federal Decree-Law No. 41 of 2022 on Civil Personal Status
- UAE Ministry of Justice: Federal Law No. 6 of 2018 on Arbitration
- DIFC Courts: Law No. 2 of 2025 concerning the DIFC Courts
- DIFC Courts: Opt in
- ADGM Courts: The English common law system
- DIAC: Arbitration Rules 2022
- UNCITRAL: Status of the New York Convention
Frequently asked questions
Is Dubai governed by Sharia law?
Partly. Islamic Sharia is a main source of UAE legislation and governs personal status for Muslims, but business law onshore is a written civil-law system. The DIFC and ADGM financial free zones use common law instead.
Does a free zone company in Dubai use English law?
No, unless the contract chooses it. Outside the DIFC and ADGM, free zone companies are under UAE civil and commercial law, and disputes go to the Arabic-language Dubai Courts unless the parties chose arbitration or the DIFC Courts.
Can a company outside the DIFC use the DIFC Courts?
Yes. Any parties can opt into the DIFC Courts with a clear written clause, even with no connection to the DIFC. The court will then apply the governing law the parties chose.
What happened to the DIFC-LCIA?
Dubai Decree No. 34 of 2021 abolished the DIFC Arbitration Institute, which ran the DIFC-LCIA, and transferred its work to DIAC. Contracts that still name the DIFC-LCIA should be reviewed and updated.
Can a Dubai arbitration award be enforced in the United States?
Generally yes. Both the UAE and the United States are parties to the New York Convention, so awards from arbitrations seated in the UAE can be enforced in U.S. courts, subject to the Convention's limited grounds for refusal.
