ADGM VS DIFC: Everything You Need to Know

The ADGM adopted almost 50 English laws and applies English common law, with certain exceptions, e.g.:

• Only if the law relates to things taking place in ADGM does it apply.
• If ADGM situations call for it specifically, it can be modified.
• If the UK law were passed after the "Application of English Law Regulations 2015" date, it would only be applied if it were specifically applied by ADGM law.
• ADGM courts, in most cases, follow English equitable principles of law and the law of trusts.

The English common law is not applied directly in DIFC. Although the DIFC laws were derived largely from English law, they constitute their own body of rules and regulations. The following is the way to find and apply the relevant law:

• If the DIFC has a rule or law, that is the relevant law.
• If a DIFC law specifically selects a different law, it takes precedence.
• If there is no such law in any DIFC law, the court uses the law of a place on which all the parties to the case agree.
• If the two sides can't agree on a law, the court will use the law that the court or an arbitrator deems best applies to the facts and persons involved in the case.
• The English laws used in jurisdictions such as England and Wales are used if everything else fails.

This means that English law is effectively always used in the ADGM courts, but is never the "last resort" in the DIFC courts.

• DIFC: The Dubai International Financial Center (DIFC) is a world-class financial hub that links economies between the Middle East, Africa, and South Asia. It is regulated by the Dubai Financial Services Authority (DFSA), which enforces strict regulations on all financial services. DIFC is also famous for its state-of-the-art infrastructure of technology, which supports a wide range of financial activities, such as banking, asset management, and fund administration.
• ADGM: Abu Dhabi's ADGM is a place where people from the Middle East, Africa, and Asia can do business. ADGM is regulated by the Financial Services Regulatory Authority (FSRA), which also makes the law strong and clear. People know that ADGM is willing to try new things and welcomes ventures in financial technology and long-term investment.

Investors and companies considering other free zones must be aware of the legal and regulatory differences between ADGM and DIFC. Both financial free zones have robust legal foundations, but their approaches to dispute resolution, compliance, and establishing a business differ. 

ADGM is the world's first financial center to apply English common law. Since ADGM courts employ English law unaltered, international investors are accustomed to it.

DIFC has its own DIFC Courts and a legal system based on UAE federal law and international best practices.

ADGM Courts: This free zone applies the English common law. In case a dispute resolution is required, the ADGM arbitration center largely does it via alternative means. DIFC Courts: The DIFC Courts are governed by UAE federal law, which is different from Dubai's regular court system. The UAE Common Law is made easier to understand by the DIFC courts, which decide business issues.

• ADGM: Firms must follow the rules set by the FSRA. ADGM has tight rules for private equity, asset management, and fintech companies.
• DIFC: The Dubai Financial Services Authority (DFSA) is in charge of banking, financial services, and business firms in DIFC.

• ADGM: It generally costs less to start a business down there. The Registration Authority from ADGM makes it easy to set up a business.
• DIFC: It can be more expensive to get a license because of the higher application fees. Big banks can use it because it works with a lot of different business plans. It gives you the same tax breaks, but you don't get to avoid company tax or VAT.

Both ADGM and DIFC offer world-class regulatory support that pulls in investors and firms from around the world. The company must decide which to use based on its needs, whether it wants ADGM's strict application of English common law or DIFC's established financial sector government.

Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) both offer valuable financial and investment benefits, making them a first choice for UAE-based businesses, financial institutions, and investors. Different tax regimes, financial sector benefits, and company accessibility may determine decisions.

Tax benefits are an important incentive for businesses in ADGM and DIFC:

• Corporate Tax: ADGM and DIFC have both enjoyed 0% corporate tax rates. Companies should look at how the 9% corporate tax in the UAE's new tax regime is applicable to their businesses.
• Value-Added Tax (VAT): The UAE imposes 5% VAT on most goods and services in both financial free zones.
• Capital Gains Tax: No capital gains tax is imposed in either jurisdiction, making it suitable for investment companies, hedge funds, and private equity firms.
• Withholding Tax: ADGM and DIFC do not have any withholding tax, thus being an attractive option for foreign investors.

Both are regional financial hubs with arrangements for fintech, banking, private equity, and venture capital.

• ADGM: FSRA (Financial Services Regulatory Authority) is fintech, blockchain, and digital banking friendly in ADGM. The FSRA provides financial startups with a RegLab sandbox, where they can experiment and develop their products within a controlled regulatory environment. It provides venture capital and asset managers with support, particularly those focusing on the tech and startup communities.
• DIFC: The DIFC, governed by the DFSA, is home to international banks, insurers, and asset managers. Startups can avail themselves of mentorship, investment, and regional expansion at the Fintech Hive. The Fintech Hive, with its sound financial infrastructure and extensive business network, is a hot destination for private equity and investment banking.

Choosing between Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) for the setup of a fund means understanding their fund structures, regulatory approvals, investment vehicles, and administration. Although the two free zones offer strong legal frameworks for private equity and venture capital firms, inherent differences impact business activities.

ADGM:

• It is closely regulated by the Financial Services Regulatory Authority (FSRA).
• Provides a range of flexible fund plans, such as retail funds, exempt funds, and qualified investor funds.
• Offers simple regulatory approval procedures for startups and new investment firms.
• It has a strong focus on venture capital, private equity, and asset management, and fintech-based funds are invited to apply.

DIFC:

• It is overseen by the Dubai Financial Services Authority (DFSA).
• The DFSA provides qualified investor funds, exempt funds, and public funds to a broad range of institutional clients.
• It needs more capital to set up than ADGM and is thus suitable for more prominent investment firms.
• It is internationally renowned for having strict regulations that deter private equity firms from relocating there.

Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) serve many industries, but their regulatory frameworks, business networks, and investor bases incline them towards particular industries. Choosing the right financial center can impact growth and efficiency for an asset management firm, hedge fund, law firm, or software startup. 

• Tech Startups and Fintech: ADGM is reputed to be fintech and startup-friendly and offers startups a regulated sandbox for testing and developing their products. DIFC is business-friendly to fintech, but large financial institutions prefer it to early-stage tech entrepreneurs. ADGM is more appropriate for startups in need of innovation-friendly regulations, and DIFC is more appropriate for more established fintech businesses in need of institutional support.
• Asset Management and Private Equity: Mid-sized investment firms and asset managers, such as ADGM's affordable fund structure, appeal to them. DIFC, having an international investor base and a mature regulatory environment, suits large private equity firms with high-value portfolios. DIFC suits larger private equity firms, while ADGM suits smaller investment managers needing regulatory agility.
• Hedge Funds and Institutional Investment: ADGM's low-cost fund structures suit mid-sized investment firms and asset managers best. DIFC suits large private equity firms with portfolios of high value under management because it offers a network of investors from all over the world and well-established rules and regulations. DIFC is best for more mature private equity firms, while ADGM is best for smaller investment managers who want more flexibility from laws.
• Law Firms and Legal Services: International law firms dealing with cross-border business transactions are drawn to ADGM's English common law regime. The DIFC possesses its own courts and provides a wide range of legal services and dispute resolution methods in both commercial arbitration and litigation. ADGM is for corporate law firms with clients in other countries, and DIFC is for litigation, arbitration, and international business law.

Kiltons Business Setup Services can help you set up your company successfully. We help businesses, investors, and companies with tasks such as getting licenses, raising funds, and meeting compliance. Our team offers support to businesses based on the goals the businesses have set for themselves. This is how Kiltons guides businesses to choose the best option for their businesses.

Some points to remember to decide: your budget, your business plan, and the market. If you're on a tight budget, a fintech beginner, and want independence from the law, ADGM is the place for you. If you want a strong government support system, business networks all over the world, and top-notch financial infrastructure, the DIFC is the place to be.

With the UAE economy expanding, you can help your business succeed in the long term if you are advised by trustworthy people and business professionals.