Does the Legal Framework of the United Arab Emirates Comply with International Standards for the Protection of Foreign Investors?

Legal protection of foreign investors under UAE legislation now

With the issuance of the UAE civil transactions law No.25 of 2025, the UAE legislator moved toward regulating contractual relationships in a more flexible and stable manner, including contracts in which one of the parties is a foreign investor. This can be seen through the strengthening of the rules governing the performance of contractual obligations and compensation for breach of contract, which helps provide high level of legal stability and confidence in investment transactions. As a result, civil law has gained an important role in evaluating the effectiveness of the legal protection granted to foreign investors within the state, especially in investment contracts and the rights and obligations related to them.

The law also established the principle of good faith as a rule governing contractual relationships at all stages (Chami et al., 2025). This principle is no longer limited only to the stage of contract performance, but now also includes the stages of negotiation, conclusion, and implementation of the contract. This reflects A broader approach in regulating contractual relationships, as it provides protection against arbitrary or unlawful conduct for contracting parties, including foreign investors (UAE Civil Transactions Law No. 25 of 2025, Art. 246).

In addition, the UAE legislator confirmed the principle of the binding force of contracts under the rule that “the contract is the law of the contracting parties”, meaning that a contract may not be cancelled or amended except by agreement between the parties or according to the law (AlQodsi et al., 2024; Alenizi & Madi, 2019). This principle is considered one of the most important guarantees relied upon by the foreign investors, because it provides stability and clarity in contractual obligations, especially in contracts of an investment nature (UAE Civil Transactions Law No. 25 of 2025, Art. 113).

Furthermore, UAE’s civil law is based on the principle of freedom of contract, while taking into consideration the limits of public order and public morals. This principle gives the parties, including foreign investors, sufficient freedom to determine the contractual terms in a way that suits the nature of the investment activity, which provides flexibility in regulating investment relationships (Al Tamimi, 2020; Abou Adel et al., 2025; Chami & Khater, 2025).

The civil transaction law also provides rules related to contractual and tort liability, which allow the parties to a contract and investors to claim compensation for damages resulting from breaching of contractual obligations were harmful acts. However, this protection is still based on general civil law rules and is not specifically designed to address the special nature of international investment disputes. This raises questions about whether these rules are sufficient to provide the required protection in some international investment disputes.

At the same time, the UAE legislator has worked on improving the attractiveness of the investment environment by allowing foreign investors to own up to 100% of companies and many economic sectors, after this ride had previously been restricted. This development has contributed to expanding investment opportunities within the state. In addition, the federal decree law No. 32 of 2021 regarding the Commercial Companies law aims to support the business environment and encourage the flow of foreign investment (UAE Federal Decree-Law No. 32 of 2021; Muchlinski, 2021; Asif et al., 2025).

Based on this direction, modern legislation has granted foreign investors greater flexibility in establishing companies in different legal forms, while reducing the procedural restrictions that are related to incorporation and operation, and removing the requirement of having a national partner in many economic activities. The state has also adopted regulatory facilities in different economic sectors (Zu, 2025), Including trade, industry, and services, while keeping some strategic activities subject to special controls. This reflects an approach that seeks to balance investment openness with the protection of national economic interests (Van Harten, 2020).

These guarantees are consistent with several well-established standards in international investment law, most importantly that property cannot be expropriated except for public benefit and in return for fair compensation, in addition to the principle of fair and equitable treatment (FET) and the protection of legitimate expectations (Dolzer & Schreuer, 2012).

The effectiveness of these guarantees has also been strengthened more by the accession of the UAE to several bilateral international agreements related to the protection and promotion of investment, as well as the adoption of procedural principles established by the United Nations Commission on International Trade Law (UNCITRAL).

Free zones have also played an important role in strengthening the investment environment by providing an independent regulatory system characterised by easy business establishment procedures, full foreign ownership, and tax exemptions and incentives granted to foreign investors within free zones for either limited or unlimited periods depending on the nature of the activity (Muchlinski, 2021). This improves the efficiency of investment operations, reduces operational costs, and increases the competitiveness of the state as a global commercial centre.

Despite the significant development achieved by UAE legislation regulating foreign investment, the protection it provides remains general in some aspects because it was not specifically designed to regulate international investment relationships involving a foreign element. Therefore, the importance of benefiting from the rules of international investment law becomes clear to complete this protection and provide a higher level of legal guarantees for foreign investors while preserving the regulatory authority of the state.

Legal protection of foreign investors under international investment law

International investment law represents the developed legal system for providing effective legal protection for foreign investors. It is based on a group of stablished legal principles and standards found in international agreements and investment arbitration decisions, which aim to protect foreign investments from arbitrary or unlawful actions that may be taken by the host state (Peat et al., 2025; Dolzer & Schreuer, 2012).

This is linked to the principle of legitimate expectations protection as well, which is considered one of the key elements of the fair and equitable treatment standard. Under this principle, the host state is expected to refrain from adopting legislative or regulatory measures that undermine the existing legal positions unjustifiably, thereby supporting the stability of the international investment relationships.

The Investment arbitration awards, and the legal scholarships have consistently emphasized the importance of clear and stable legislation on which the investors rely on when making investment decisions. They also highlighted the need to avoid sudden changes that could significantly affect an investor’s legal or economic position (Dolzer & Schreuer, 2012; Qutieshat et al., 2026; Ibrahim et al., 2026).

In addition to the substantive guarantees, Investment dispute settlement mechanisms represent one of the most important elements of international investment law protection. These mechanisms give the foreign investors the right to bring there are disputes before independent and impartial arbitration centers to resolve disputes that may arise with the host state (Sachs, Johnson & Coleman, 2022).

One of the most significant arbitration bodies is the International Centre for Settlement of Investment Disputes (ICSID), that was established under the Washington Convention of 1965. The ICSID Was created to provide a specialized legal mechanism for investment disputes resolution between the foreign investors and the host states (Schreuer, 2009; Marcoux et al., 2024).

Although the international investment arbitration is considered a very effective method for investment disputes resolution (Marcoux et al., 2024), some legal scholars argue that excessive reliance on it may, in certain cases, limit a state’s ability to exercise It’s regulatory authority in protecting the public interest. For example, Environmental Protection on public health. This concern is commonly referred to as the concept of the states “regulatory space” (OECD, 2023; Nggilu et al., 2025).

This issue has increasingly become important, due to the broad interpretation of certain standards related to international investment protection, particularly the principle of fair and equitable treatment. Such broad interpretations may grant arbitral tribunals Are significant discretionary power, which can lead to inconsistent outcomes in cases involving similar facts (Dolzer & Schreuer, 2012).

Furthermore, the absence of binding precedent system in international investment arbitration may lead to different arbitral decisions in similar cases. This raises concerns regarding the legal certainty and the predictability of the outcomes for both the investors and the host state.

In addition, there is an ongoing academic debate on balancing between the foreign investors’ protection, and the preservation of a state’s right to exercise its regulatory authority. Some scholars argue that an expansive interpretation of certain protection standards can restrict the state’s freedom to regulate sectors with sensitive nature.

Moreover, investment arbitration proceedings are often associated with high costs and lower levels of transparency, compared to the national courts. This may create significant financial and procedural burdens, particularly in high value investment disputes (Sornarajah, 2021; Van Harten, 2020).

Integration between national protection and international standards for foreign investors protection

By analyzing the UAE’s national legislations, particularly the Civil Transaction Law, the Foreign Direct Investment Law, and the Commercial Companies Law, the analysis shows that the UAE legislator has taken clear steps toward creating an attractive legal environment for foreign investment. This has been achieved through the adoption of flexible legal principles governing contracts, the expansion of foreign ownership rights, and the simplification of procedures for establishing companies and carrying out business activities.

While the UAE’s Civil Transactions Law sets out the general rules that are governing the contractual obligations, such as the principles of good faith and the binding force of contracts, the/foreign Investment Law, and the Commercial Companies Law focus more specifically on regulating the entry of foreign investors and facilitating their business activities within the country. This reflects a degree of integration between the general legal framework, and the specialized rules that govern investment (Muchlinski, 2021; Zu, 2025; Madi & Masn, 2024).

At the international level, the International Investment Law, and Investment Arbitration standards provide a range of legal protections for foreign investors, including fair and equitable treatment, and protection against unlawful expropriation. In addition, they allow investors to resort to international arbitration to resolve disputes that may arise between the investor and the host state. (Peat et al. 2025; ICSID, 1965; UNCTAD, 2023).

By comparing the national and international legal frameworks, the comparison shows that the UAE’s legislation provides general and flexible protection for foreign investors. The Civil Transaction Law is based on fundamental contractual Principles that offer a broad level of protection. However, this protection remains general naturally and does not include detailed safeguards specifically those designed for international investment. In contrast, the Foreign Direct Investment Law provides more specialized incentives and guarantees for foreign investors. At the international level, international investment law offers broader and more detailed protection that further strengthen the legal position for the foreign investors.

The interaction between the national and the international rules contributes to the stability of the investment transactions and enhances the attractiveness of the UAE’s investment environment. In this context, investment arbitration plays an important role as a legal mechanism that connects the national laws with the international standards, by balancing the protection of foreign investors with the states sovereign right to regulate its economic activities (Peat et al. 2025; Sornarajah, 2021).

Therefore, it can be argued that the relationship between the national and the international systems is based on a degree of integration. However, achieving a greater legislative harmony requires more clarity regarding certain concepts, particularly those related to foreign investment, to reduce reliance on judicial or arbitral interpretation when determining the scope of the legal protection (Imad et al., 2026).

The importance of this matter becomes more apparent when an investment dispute arises. In such circumstances, the foreign investors may rely on the protectionist standards contained in the international investment agreement, while the host state may rely on the provisions of its domestic law. As a result, investment arbitration remains the most suitable mechanism for balancing the interests of investors with the state’s right to preserve its economic sovereignty (Sornarajah, 2021).

Practical challenges in protecting foreign investors between the national legal

Although UAE legislation provides various legal and procedural safeguards to protect foreign investors, In addition to allowing access to the international investment arbitration mechanisms for dispute resolution (Sachs, Johnson & Coleman, 2022), Evaluating the effectiveness of this protection, can reveal some practical challenges arising from interaction between the national legal system, and the rules of international investment law.

One of the main challenges is the absence of a unified legislative definition of the foreign investor protection, which can affect the clarity of the scoop and limits of the legal protection. In addition, the legal provisions governing investor protection are scattered across several laws, rather than being consolidated then a single legislative framework, which can be easily referred to when it is needed. This creates practical difficulties in identifying a clear legal regime that fully protects the rights of foreign investors.

However, these observations do not undermine the effectiveness of the protection provided under the UAE legislation or the importance of international investment arbitration. Rather, they highlight the areas that could be further developed, to improve the clarity of the legal rules, and enhance legal certainty, in line with the modern trends in international investment law.

In this context, it is important to examine the relationship between judicial and arbitral practice in the UAE, and the challenges that may affect the International Investment Dispute Settlement System (ISDS). While at the national level, the UAE course generally support the principles of transactional stability, and the binding force of contracts by applying the principle of ““the contract is the law of the parties.” Courts usually avoid interfering with the parties contractual intentions, except in limited circumstances, particularly where issues of public policy, or defects and consent arise.

This approach reflects respect for the principles of legal certainty, and legitimate expectations in the commercial transactions, which are consistent with modern international standards for investment protection.

Booth the Civil Transactions Law, And the Commercial Transactions Law, provide a strong legal foundation that supports investment in the UAE. Where the former promotes stability in the legal transactions across the country for all the parties concerned, while the latter offers the speed and flexibility required for commercial activities. This aligns with the need for international investment and enhances the legal confidence of the foreign investors.

Similarly, the Foreign Direct Investment Law has expanded the range of economic activities that are open to foreign investment, and introduced a few guarantees related to the property rights’ protection, as well as the freedom to transfer profits, and the capital without restrictions. These measures provide foreign investors with a high level of financial security, and reduce the risks associated with limitations on liquidity or profits generated from investment activities, which is consistent with the requirements of the international investment (Alhajaya, Madi, & Kameel, 2022).

Furthermore, the UAE Commercial Companies Law No. (32) of 2021 Brought significant developments to the investment environment, by allowing full foreign ownership in many economic sectors. This has given the foreign investors greater administrative and financial independence, while also simplifying the company incorporation and governance procedures.

Additionally, the competent regulatory authorities have played an important role in accelerating procedures and reducing administrative complexity. Examples include the Department of Economy and Tourism in Dubai, and the Abu Dhabi Department of Economic Development, whose efforts have contributed to improving the efficiency of the investment transactions across the UAE.

At the institutional level, the arbitration environment in the UAE is considered generally supportive of alternative dispute resolutions mechanisms. USA courts have adopted the principle of respecting arbitration agreements, and limiting judicial intervention in the arbitral awards, which enhances the effectiveness of arbitration, as a primary method for investment-related disputes resolution. In addition, the arbitration centers such as Dubai International Arbitration Centre (DIAC), And the Abu Dhabi arbitration institutions, play an important role and strengthen confidence in the national legal system, particularly in disputes that involve foreign parties.

However, despite this progress at the national level, there are several challenges remaining within the International Investment Dispute Settlement System (ISDS). Although the ISDS plays an important role in protecting the investors, concerns continue to exist regarding the inconsistent interpretation of certain substantive standards, especially the fair and equitable treatment standard. This standard remains open to different interpretations by the arbitral tribunals, which may lead to different legal outcomes in cases involving similar facts (UNCTAD, 2023).

Therefore, it can be argued that the UAE’s legislative policy has successfully combined economic openness with strong legal safeguards, contributing to the stability of the investment environment, and the protection of the foreign capital. This approach has strengthened the UAE’s position as an attractive destination for foreign investment (Van Harten, 2020).

It can be clearly seen that the relationship between the judicial, and the arbitral system in the UAE and the international investment arbitration system, is not one of separation, but rather one of mutual interaction. This connection reflects the ability to balance the protection of foreign investors, with the state’s right to regulate its economic affairs. Nevertheless, some of the practical challenges still require attention, particularly the need for greater procedural clarity in certain sections, to ensure a higher degree of consistency and legal protection.

At the same time, an ongoing challenge remains in maintaining a balance between continuing to attract foreign investment, and safeguarding national economic interests, especially in the light of the increasing regional and international competition. (Van Harten, 2020).

Comparative approaches and the development of the legal framework for foreign investor protection in the UAE

In the process of assessing the effectiveness of the UAE legal system and protecting foreign investors, it is valuable to consider the competitive experiences, particularly those of Singapore and France. Because these two countries provide different models for regulating foreign investment, while balancing the attraction of investment with the protection of the national interests.

On the one hand, the investment legal framework in Singapore is based on clarity, simplicity, and easy access to the rules governing economic activities. At the same time, it provides stable guarantees for the investors, including property rights protection, the freedom to transfer profits, and the legislative stability. Singapore has also been successful in reducing investment disputes through a clear regulatory environment, and by promoting alternative dispute resolution mechanisms, particularly mediation and commercial arbitration. This has increased the efficiency of the investment environment and increased legal certainty for investors. (World Bank, 2020; Farrington et al., 2025).

On the other hand, France follows a different model that seeks balancing the investment openness with regulatory oversight. Certain foreign investments, particularly those involving strategic sectors, are subject to review and require prior approval procedures. This approach is intended to protect the state’s strategic interests and reflects A broader European trend toward safeguarding “economic sovereignty”, while continuing to comply with the international standards for investor protection. (OECD, 2023).

While at the level of investment arbitration, both Singapore and France have worked to develop their investment dispute settlement systems (Marcoux et al., 2024), with a particular focus on transparency, and the consistent interpretation of legal rules. Both countries have supported reforming efforts within the United Nations Commission on International Trade Law (UNCITRAL), Aimed at reducing inconsistencies in arbitral decisions and increasing confidence in the system.

When these models are compared with the UAE experience, it becomes clear that the UAE is closer to the Singaporean model in many respects, particularly in its adoption of an investment-friendly approach based on economic openness and regulatory flexibility. However, the UAE legal system could further benefit from improving legislative consistency and providing greater clarity in the legal definitions and concepts related to investor protection. At the same time, the UAE may draw lessons from the French experience by introducing more clearly defined safeguards for strategic and sensitive sectors without reducing the attractiveness of foreign investment.

This comparison demonstrates that enhancing the effectiveness of the UAE legal framework for the protection of foreign investors may be achieved by combining the clarity and flexibility of the Singaporean model with the balanced regulatory approach of the French model. Such an approach would contribute to a more stable investment environment and strengthen the UAE’s ability to keep pace with modern developments in international investment law.

Therefore, developing the legal framework for the protection of foreign investors in the United Arab Emirates does not require fundamental changes to the existing legislative system. Rather, it requires specific legislative and regulatory improvements aimed at increasing clarity and consistency, while also enhancing regulatory and procedural mechanisms in line with recent developments in international investment law (Gharaibeh et al., 2024).

In this regard, there is a need to unify the legal definitions and concepts related to foreign investor protection, particularly the principles of fair and equitable treatment and the protection of legitimate expectations. This can be achieved either through amendments to existing legislation or by issuing an official interpretative guide that promotes transparency and reduces differences in the interpretation of these concepts.

On the other hand, recent developments in international investment law highlight the importance of consolidating and organizing the rules governing foreign investment within a unified legislative framework. Such an approach would make it easier for investors to identify and understand the legal rules applicable to foreign investment without having to navigate multiple laws, while preserving the flexibility that characterizes the UAE legal system.

In addition, increasing attention should be given to achieving a greater balance between investor protection and the state’s right to regulate. This can be accomplished by introducing clearer provisions in bilateral investment agreements that expressly recognize the state’s right to adopt regulatory measures necessary to protect the public interest, without such measures being considered a breach of its international obligations relating to investment protection.

With regard to the settlement of investment disputes, there is a need to strengthen transparency in investment arbitration proceedings by encouraging the publication of arbitral awards and applying the transparency rules developed by the United Nations Commission on International Trade Law (UNCITRAL). This would contribute to the development of more consistent legal principles and improve the predictability of arbitral decisions.

The development of legal protection for foreign investors also requires greater support for alternative dispute resolution methods, such as mediation and conciliation, before resorting to investment arbitration. This approach can help reduce the time and costs associated with international investment disputes.

In addition, it is important to enhance national institutional and judicial capacity in the field of investment disputes through specialized training for judges and arbitrators, as well as by strengthening the expertise of national legal professionals in handling investment disputes at both the domestic and international levels.

In light of the above, it is evident that adopting these proposals would improve the clarity of legal rules and achieve a greater balance between the protection of foreign investors and the state’s right to regulate its public policies. This, in turn, would support the stability of the investment environment in the United Arab Emirates and reinforce its position as an attractive destination for foreign investment.

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