14 April 2025

Middle East Links – March 2025

Welcome to our Middle East Links newsletter, where you will find updates and insights on developments in the United Arab Emirates, including the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), and the Kingdom of Saudi Arabia.

 
 

Welcome to our March 2025 issue of Middle East Links. In Saudi Arabia, reform momentum continues, and we look at the disclosure obligations for companies under new Ultimate Beneficial Owner rules and the new netting framework. Those doing business in the United Arab Emirates should be aware of developments ranging from new laws and procedures relevant to agreeing contractual dispute resolution provisions, to the newly published thresholds that trigger the need for a merger filing.

Please contact a member of our Middle East team if you would like to discuss these developments with us.

 
Waleed Rasromani, National Managing Partner – Saudi Arabia

This issue covers key developments from the first quarter of 2025. Explore more below:

ADGM

Regulatory Updates
ADGM courts and Dubai courts agreement on enforcement procedures

A new Memorandum of Understanding (“MoU”) dated 15 January 2025 sets out the framework and procedures that the courts should follow in relation to the reciprocal enforcement of judgments, decisions and orders (including ratified arbitral awards) issued by the common law courts in the ADGM and the onshore civil law courts in Dubai. 

The MoU provides for direct enforcement of judgments between the courts, without review of the merits, if the required process is followed. Despite affirmations in ADGM law that the ADGM courts are recognised as part of the Abu Dhabi judicial system, there is still a tendency in the market to consider that it may be preferable first, to refer the ADGM court judgment to the onshore Abu Dhabi courts and for the onshore Abu Dhabi court to issue and refer an enforcement order to the onshore Dubai courts, rather than rely on direct referral from the ADGM courts to the onshore Dubai courts. According to the MoU, this interim step of referral to the onshore Abu Dhabi courts is not required. Parties who litigate or arbitrate their disputes in ADGM should therefore benefit from a more straightforward enforcement process onshore in Dubai.

While the guidance in the MoU is non-binding, we expect that the ADGM courts and the onshore Dubai courts should consider this guidance in relevant enforcement proceedings before them. MoUs are already in place with other national courts in the UAE and international courts, including courts in England, Singapore and Australia.

DIFC

Regulatory Updates
New law on the DIFC Courts 

The jurisdiction of the DIFC courts and the enforcement of judgments and arbitral awards is now regulated by Dubai Law No.2 of 2025, known as the “DIFC Courts Law”, with effect from 14 March 2025. The Dubai Judicial Authority Law (Dubai Law No.12 of 2004) and the DIFC Courts Law (DIFC Law No.10 of 2004), which previously governed these matters, are no longer in force.

Many aspects of how the DIFC Courts operate are similar to the previous regime. For example, the scope of the jurisdiction of the DIFC Courts is broadly the same, including the opt-in jurisdictional gateway where the parties include a submission to the jurisdiction of the DIFC Court in their agreements. The contractual governing law of an agreement chosen by the parties will generally be recognised by the DIFC courts, and there is no longer an express proviso that such law must not conflict with the public order and morals in the UAE. 

The DIFC Court has jurisdiction to enforce foreign court judgments (including ratified foreign arbitral awards) against DIFC entities. It is no longer the case that only judgments of “recognised” foreign courts can be enforced. International treaties, such as the New York Convention 1958, continue to apply in relevant enforcement proceedings. Where a DIFC court judgment (including ratified arbitral awards) needs to be referred for enforcement to the onshore Dubai , the Dubai courts must proceed to enforce those judgments without review of the merits, if the required procedure is followed, under reciprocal enforcement arrangements. If enforcement against assets outside Dubai is needed, the DIFC courts are to “seek the assistance” of the Dubai courts. This is likely to require the referral of DIFC court judgments to the Dubai courts as a first step towards onward enforcement in another national court (outside the Emirate of Dubai) or a foreign court. A new Mediation Centre will be established in the DIFC and further details are expected on this soon.

Reform proposals affecting the data protection and security laws

Changes to DIFC laws on data protection and security are proposed in Consultation Paper No.1 of 2025. If enacted, DIFC Law Amendment Law No.1 of 2025 would clarify the scope of application of the Data Protection Law (DIFC Law No.5 of 2020), enhance redress mechanisms and rights of data subjects. You can find out more in our recent Tech Insights post. 

The changes to the Law of Security would see refinements to the provisions on financial collateral, to more closely align with similar regimes for financial collateral arrangements in other jurisdictions. Helpful clarification on points including what constitutes financial collateral, that control of the financial collateral is required for a security right to be effective as against third parties, and conflict of law issues relating to certain types of financial collateral, is proposed. Certain clarificatory amendments are also proposed in respect of the Insolvency Law and Employment Law.

DFSA proposes governance reforms relating to Licensed Individuals
The DFSA has proposed significant revisions to the appointment, supervision, and regulation of key roles within DFSA regulated Authorised Firms in the DIFC, as part of a wider review of corporate governance. DFSA Consultation Paper No.165 on Proposed Changes to the DFSA’s Approach to Licensed Functions and Authorised Individuals proposes changes to the DFSA Rulebook to bring the regime more in line with international best practice as adopted by other regulators, including in the United Kingdom. If enacted, it would see Authorised Firms take more responsibility for key staff being appropriately qualified and their standards of conduct. DFSA Authorised Firms will need to ensure that their policies and procedures are updated, once the new rules are adopted, which is expected to be on 1 September 2025.

The DFSA has the authority to prescribe “Licensed Functions” that shall be carried out by DFSA-authorised “Licensed Individuals”, such as the Senior Executive Officer (SEO), Money Laundering Reporting Officer (MLRO), Finance Officer and Compliance Officer. Currently, all these individuals must be approved by the DFSA and fit and proper for the roles. The proposals would see some of these individuals - the Compliance Officer, Finance Officer and Senior Manager - reclassified as “Designated Individuals” and their functions termed “Designated Functions”. Their appointment would no longer be subject to the prior approval of the DFSA and Authorised Firms would take on responsibility and accountability for ensuring such staff are fit and proper (and remain so). The SEO and MLRO will remain Licensed Functions requiring DFSA approval. Rules relating to Finance Officers and Compliance Officers would be relaxed, with the key requirement being that such persons have sufficient seniority and independence, and rules relating to Senior Managers would be clarified. The Principles for Authorised Individuals would be renamed as “Conduct Principles” and applicable to Designated Individuals as well as Licensed Individuals. While DFSA approval will no longer be required for Designated Functions, firms will be required to (i) notify the DFSA within seven days of appointing or removing a Designated Individual, (ii) attest that fitness and propriety has been assessed in accordance with the relevant criteria and (iii) perform periodic reviews and submit annual attestations confirming ongoing fitness and propriety.

UAE

Regulatory Updates
UAE merger control thresholds published

Since the new Competition Law (Federal Decree-Law No.36 of 2023) came into force at the end of 2023, parties entering into M&A transactions in the UAE have been awaiting clarification as to the triggers for making a merger application filing to the UAE Competition Authority. UAE Cabinet Resolution No.3 of 2025 clarifies that an application for approval must be made where a proposed economic concentration may affect competition in a relevant market, based on:

  • market share, where the combined market share of the parties involved exceeds 40 per cent in the relevant market in the UAE during the last fiscal year (this is the same as under the previous regime); or
  • turnover, where the annual sales of the parties involved in the economic concentration, in the relevant market in the UAE, during the last financial year exceed AED 300m.  

There are also new rights for interested parties to file objections to proposed economic concentrations, and the changes to fines that may be imposed as penalties for breach of the law. Cabinet Decision No.13 of 2016 on the Ratios and Controls has been repealed. Implementing regulations are expected to be made under the Competition Law. 

New licensing rules for free zone entities operating in Dubai
New rules regulate how free zone companies (other than regulated financial services firms in the DIFC) can do business onshore in Dubai. Under a new licensing and permit structure, free zone entities may obtain a licence to establish a branch (either a branch office set up in Dubai or a branch with its headquarters in the free zone) or a temporary, 6-month permit to practice limited activities onshore in Dubai, if certain conditions are satisfied. These conditions include obtaining approvals from the required licensing authority in the free zone and the relevant government authority responsible for supervising the relevant business activities in Dubai, and making a formal application with the required supporting information. If granted a licence or permit, the free zone entity must comply with applicable onshore rules for the relevant business activity, and prepare separate financial records for its activities conducted onshore in Dubai. The rules are set out in Dubai Executive Council Decision No.11 of 2025 On the Regulation of Free Zone Establishments Practicing their Activities within the Emirate of Dubai which was issued on 3 March 2025.

 

Proposed SCA rules on goodwill in PJSC’s financial statements

The valuation of goodwill by a UAE public joint stock company (“PJSC”) in financial statements and disclosures in the context of a business combination, such as a takeover, merger or acquisition, is the subject a new proposed regulation by the UAE Securities and Commodities Authority (“SCA”). As part of the consultation process, the proposals would see goodwill separately recorded and treated in accordance with International Financial Reporting Standards (IFRS) rules in financial statements. Disclosures in the footnotes to the financial statements must include information on the value of the goodwill and the factors that contributed to the recognition of goodwill, as well as details of impairment testing. Goodwill must be tested at least annually for impairment, and PJSCs must have appropriate procedures in place for testing. The consultation closed on 19 March 2025. 

Saudi Arabia

Regulatory Updates
Ultimate Beneficial Owner rules published

Saudi Arabian companies need to comply with new disclosure obligations in accordance with the Decision of the Minister of Commerce No.235 of 1446 on the approval of the ultimate beneficial rules (the “UBO Rules”) with effect from 3 April 2025, unless they are exempt. This places an onus on companies to diligence their ownership structures, to monitor changes and to disclose accurate information at the required times, otherwise they may face fines. 

A new online UBO Register will record details of persons who are ultimate beneficial owners (“UBOs”) of Saudi Arabian companies (there are some exemptions, including for listed public joint stock companies and companies wholly-owned by the Government). Companies must disclose details of UBOs to the Ministry of Commerce (i) on incorporation (for newly incorporated companies), (ii) annually, in their annual confirmation statement, and (iii) within 15 days of any changes to UBO details. Who is registrable on the new UBO Register is broadly in line with many other jurisdictions regionally and internationally. A UBO is a natural person who (directly or indirectly):

  • owns at least 25 per cent of the company's capital;
  • controls at least 25 per cent of the total voting rights in the company;
  • has the power to appoint the company's manager, the majority of its board members, or its chairman, or to have the authority to dismiss the manager, the majority of the board members, or the chairman; or
  • has the ability to influence the company's operations or decisions. 

The UBO Register will record the personal details of each UBO but will not be open to the public. Companies must also maintain their own internal records of UBOs. Further guidance from the Ministry of Commerce is expected.

Investment Law: Investor Guide published
Companies in Saudi Arabia and their investors should be aware that the new regime under the Investment Law (Royal Decree No. M19/1446) is now in force with effect from 13 February 2025. The updated regime regulates investment in Saudi Arabian companies by both domestic and foreign investors, with enhanced investor protections and a new national register of investors. Investment will only be restricted in Saudi Arabian companies engaged in activities on a list of “excluded activities". The draft implementing regulations, which are expected to be enacted soon, contemplate an “Investor Guide". The Investor Guide has been published, though it does not include a list of the excluded activities, as anticipated. 

You can read more about the Investment Law in our recent alert.


Close-out netting frameworks

The Saudi Central Bank (“SAMA”) and Saudi Arabia’s Capital Market Authority (“CMA”) have taken steps to alleviate concerns that a non-defaulting party’s right to terminate eligible financial transactions and net their termination values may be unenforceable when a SAMA or CMA regulated counterparty is subject to bankruptcy proceedings.

SAMA issued the Close-out Netting and related Collateral Arrangements Regulation (Decision Noi.1/46) dated 18/08/1446H) on 17 February 2025. The CMA is consulting on a new regulatory framework for close-out netting for Capital Market institutions, in a consultation process ending on 26 March 2025. The SAMA regulations and the proposed CMA regulations are substantially the same. In each case, they address the enforceability of the bilateral close-out netting and multibranch netting provisions in eligible “Qualified Financial Contracts” involving a SAMA or CMA regulated counterparty, including pre- and post-commencement of a proceeding under the Saudi Arabian Bankruptcy Law. The term Qualified Financial Contract is broadly defined and the non-exhaustive list of such contracts includes swaps, derivatives, options, future, forward or other similar transactions. Under the new regimes, SAMA and the CMA each have the discretion to designate additional contracts as Qualified Financial Contracts. Post-insolvency, claims for payment of a net amounts in accordance with netting arrangements under Qualified Financial Contracts may not be subject to a stay and such contracts generally may not be set aside by the bankruptcy trustee or bankruptcy court, for example as a preference or fraudulent transaction.

ISDA, in coordination with the IIFM, has published draft Saudi Arabian legal opinions on the enforceability of close-out netting under the 2010 ISDA/IIFM Tahawwut Master Agreement for consultation, and under the 1992 and 2002 ISDA Master Agreements. These netting opinions, once issued, will form part of a suite of opinions that ISDA makes available to its members that provide comfort on whether netting is enforceable, including in the event of insolvency.


Capital Market Authority consults on new funds and brokerage regulations 

The regulatory environment for funds in Saudi Arabia is expected to be further refined, following a consultation by the CMA on proposed draft Amendments of the Investment Funds Regulations, Real Estate Investment Funds Regulations, and the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority. The consultation process closed in March 2025. The proposed changes for investment funds range from broadening the scope of licensed capital market institutions who may distribute foreign funds in a private placement and the methods of distribution, to introducing more rigorous governance standards. Other changes are clarificatory in nature. 

The CMA also consulted on the changes to the licensing requirements for brokerage companies, which would see greater flexibility in capital requirements and legal form for brokerage companies, which are intended to stimulate growth in dealing and custody business.

Cross-border

Regulatory Updates
Comparative review of contract law in Saudi Arabia, the UAE and England & Wales

Well drafted contracts are one of the fundamental building blocks for international businesses to thrive and manage risk. Underlying any well drafted contract should be a robust understanding of applicable contract law and how the contract might be interpreted by relevant courts. 

Contractual relationships in Saudi Arabia are now governed by a new Civil Transactions Law (Saudi Arabia Royal Decree No. M191/1444 H), which came into force in December 2023. The Civil Transactions Law is the first published law to set out a framework applicable to all types of contracts. Previously, contracts were governed by and interpreted in accordance with Shari’ah principles, with certain categories of contracts regulated by specific published laws. In common with other Middle East civil law jurisdictions, Saudi Arabia now has a codified basic contract law regime, aspects of which are influenced by French, Roman, Egyptian, Jordanian and Islamic law. Certain fundamental principles relating to contract formation reflect similar principles found in both common law and civil law jurisdictions. 

If you're wondering how Saudi Arabia’s contract law regime compares with regimes in the UAE and England & Wales, please explore our recent alert which explains core principles of contract law in these jurisdictions.

International arbitration and the choice of law to govern arbitration agreements
A well-drafted agreement to arbitrate should include an express governing law clause, as an arbitration clause is generally regarded as legally distinct (or separable) from the main agreement in which it is located. 

An anticipated change in English law will affect contracts where the parties chosen governing law does not “match” with the seat of arbitration, for example, where the parties have selected DIFC or ADGM as a seat of arbitration but the contract is governed by English law or a DIFC or ADGM law contract with arbitration seated in England. 

A new default rule under English law will soon come into force regarding how to determine the governing law of an agreement to arbitrate in a contract. This means that if the parties have not expressly agreed on the applicable law to govern the agreement to arbitrate, the governing law will be the law of the seat of the arbitration in question. This departs from the current position that, in the absence of an express clause, generally the English court will assume that the governing law of the arbitration agreement will be the same as the governing law of the main contract. So, if the parties wish their arbitration agreement to be governed by the same law as that chosen to govern their main contract, this should be expressly stated.
 
You can read more about the reforms that will be made to English arbitration law, for which parties should prepare in our recent alert on our blog, Arbitration Links.