The UAE is a federation of seven Emirates comprising Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain and was formed on 2 December 1971. The UAE federal constitution was permanently accepted in 1996 and provides for an allocation of powers between the federal government and the government of each Emirate.
The constitution provides the legal framework for the federation and is the basis of all legislation promulgated at a federal and emirate level. Pursuant to the constitution, the federal government has exclusive jurisdiction in various substantive matters, including foreign policy, defense and security. Legislation passed at a federal level has primacy over the local laws of each Emirate. The local government of each Emirate is, however, permitted under Article 113 of the constitution to regulate all local matters which are not subject to federal legislation or matters which are not expressly reserved in the constitution to the federal union (examples of such federal matters being foreign affairs, defense and health). As such, the governments of each individual Emirate retain substantial powers to regulate commercial activities, issue trade licenses and effect the incorporation of corporate entities to the extent that such activity is not already regulated under federal legislation.
The UAE judicial system varies significantly across the Emirates and the free zones.
Only five Emirates submit to a federal court system — Dubai and Ras Al Khaimah have their own independent court systems. All of the Emirates (except in respect of some of the free zones) follow uniformly similar rules of civil procedure and evidence, and trials are decided by a single judge or a panel of three judges, and not by a jury In addition, some of the free zones have their own judicial systems, as well as their own rules of civil procedure and evidence.
Free Zones in Dubai
The UAE federal constitution, the federal laws relating to free zones and the powers reserved by the individual Emirates under the federal structure, permit each Emirate to set up “free zones” for general or industry-specific activities.
The purpose of free zones is to encourage foreign direct investment into the UAE. Free zone entities are not generally required to have any UAE nationals as owners. This contrasts with most companies incorporated in the UAE outside of the free zones, where UAE nationals are typically required to own at least 51 percent of the company’s capital.Various free zones have been set up in the UAE, most of which are in the Emirate of Dubai. Free zones are authorized to enact their own laws and regulations in specific areas, which in some cases override federal and Emirate law on the subject matter
For example, the Dubai International Financial Center (the DIFC), which is a financial free zone within Dubai, has its own body of law, including corporate law, contracts law and employment law, as well as its own court system.
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