Convertible Notes and SAFEs in the UAE

Convertible note UAE basics: the short answer

As of October 2026. A convertible note UAE investors sign is enforceable as a contract almost everywhere in the country, but whether it converts smoothly into shares depends on where the company is incorporated. In the DIFC and ADGM, convertible notes and SAFEs (simple agreements for future equity) work much as they do in London or Singapore. For a mainland LLC, conversion means a capital increase, admission of a new partner and an amended memorandum of association, each needing shareholder approval and filings with the licensing authority.

That is why most UAE startups that plan to raise repeatedly put a DIFC or ADGM holding company above the operating business and issue convertibles at the holding level. The 2025 amendments to the Commercial Companies Law, in force since late 2025, narrow the gap by allowing mainland LLCs to issue different classes of shares, but the detailed rules are left to Cabinet decisions and the conversion mechanics remain more formal than in the financial free zones.

Convertible notes and SAFEs: what they are

A convertible note is a loan that converts into shares, usually at the next priced equity round, at a discount to the round price or at a valuation cap, whichever gives the investor more shares. Until conversion it is debt: it often carries interest and has a maturity date, at which the investor may be repaid or converted.

A SAFE is not a loan. The investor pays now for a right to receive shares later on a trigger, usually a priced round, a sale or a listing. It has no interest and no maturity date, which suits founders but means the investor can wait indefinitely if no trigger occurs. SAFE templates originate in the United States and assume a Delaware-style company; they need adapting before use in the UAE.

The legal framework

• Commercial Companies Law. Federal Decree-Law No. 32 of 2021, as amended by Federal Decree-Law No. 20 of 2025, governs mainland companies. Only joint stock companies may issue negotiable shares, bonds or sukuk, and a joint stock company may issue bonds convertible into shares with the capital markets regulator's approval. A mainland LLC cannot issue negotiable securities, so its "note" is a private loan contract.
• 2025 amendments. LLCs may now issue different classes of shares with different voting, dividend and other rights, and constitutions may include drag-along and tag-along clauses. Detailed conditions are left to Cabinet decisions, so check the current position with the licensing authority before relying on them.
• Public offers. Only a public joint stock company may offer securities to the public, and advertising securities in the UAE requires the prior approval of the Capital Market Authority. A broadly marketed note round can stray into a public offer.
• DIFC and ADGM. The DIFC Companies Law and the ADGM Companies Regulations allow multiple share classes, bespoke articles and contractual investor rights, administered by the DIFC Registrar of Companies and the ADGM Registration Authority. Offers of securities there follow the DFSA and FSRA private placement and exempt offer rules.
• Civil and commercial law. Interest, penalties and default provisions in a note governed by UAE law are tested against the Commercial Transactions Law and the new Civil Transactions Law (Federal Decree-Law No. 25 of 2025, in force from 1 June 2026). Check them when drafting rather than importing foreign clauses wholesale.

How conversion works in practice

Conversion is where convertible note UAE deals succeed or fail. The economic terms are familiar: discount, cap, most-favoured-nation clause, maturity conversion. The local question is how the company actually issues the shares.

1. Check the constitution. Confirm that the articles or memorandum permit the class of shares the investor will receive, and whether pre-emption rights must be waived by existing shareholders.
2. Obtain advance waivers and undertakings. Ask existing shareholders, at signing, to waive pre-emption for the conversion and to vote in favour of the resolutions needed. A power of attorney can help for a mainland company.
3. Calculate the conversion. Apply the cap or discount to the qualifying round, including accrued interest if the note provides for it, and agree the share numbers with the investor.
4. Pass resolutions. Board and shareholder resolutions approve the capital increase and the issue of shares; in a mainland LLC the memorandum of association is amended to add the new partner and capital.
5. File with the registrar or licensing authority. In DIFC and ADGM, file the share allotment and any amended articles with the registrar. On the mainland, file the amended memorandum with the economic department, with notarisation as required.
6. Update registers and the cap table. Update the share register, beneficial ownership records and the investor's documents, and issue share certificates where used.
7. Close out the instrument. Record that the note or SAFE has been satisfied by conversion, so no residual debt claim survives.

Structuring options for UAE startups

There are three common approaches to a convertible note UAE founders can use.

1. DIFC or ADGM holding company

The startup incorporates a holding company in the DIFC or ADGM that owns the mainland or free zone operating company. Notes and SAFEs are issued by the holding company, and later priced rounds issue preferred shares there. This is the cleanest route for repeated fundraising; see setting up a company in the DIFC and setting up a company in ADGM.

2. Instrument at the operating company

Where the business is a mainland LLC and a restructure is not yet justified, a carefully drafted convertible loan with undertakings and a fallback repayment right can work. A SAFE is harder to fit onshore because it is neither a loan nor a share, so it is usually redrafted as a convertible loan or an advance subscription agreement.

3. Holding company abroad

Some founders use a Delaware, Cayman, Singapore or UK holding company. That suits investors familiar with those regimes but adds foreign compliance, tax residence questions and UAE substance considerations for the operating company.

Whichever route is chosen, do the restructuring before the first instrument is signed if possible. Moving the shares of an operating LLC under a new holding company after notes have been issued means re-papering every note so that it converts at the new holding level, and obtaining every holder's consent. Doing it first is quicker, cheaper and cleaner for later due diligence.

Our guide to venture capital investment in UAE startups covers the priced round that usually follows, and shareholders' agreements explains the rights investors will negotiate on conversion.

Key terms to negotiate in a convertible note UAE round

The commercial terms of a convertible note UAE investors and founders negotiate are broadly international, but each needs a local check.

• Valuation cap and discount. State whether the cap is pre-money or post-money, and whether it includes the option pool and other convertibles. Ambiguity here causes most conversion disputes.
• Qualifying financing. Define the round that triggers conversion by a minimum amount raised, in a stated currency, and specify whether it must be equity in the issuing company or may be at a new holding company after a restructuring.
• Maturity. Agree whether the note converts automatically at maturity, at a fixed valuation, or is repayable, and who decides.
• Change of control and listing. Set what the investor receives on a sale or IPO before conversion: a multiple of the principal, conversion at the cap, or a choice.
• Class of shares. Say whether the investor receives the same class as the new round investors, and what happens if the issuer cannot create that class.
• Information and pro rata rights. Decide whether the investor gets updates before conversion and a right to participate in the next round.
• Governing law and disputes. Align the governing law and courts or arbitration with the issuer: DIFC or ADGM courts for a financial free zone company, and a considered choice for a mainland issuer, where arbitration in the UAE is often preferred.

Investors increasingly ask for a side letter covering anti-dilution protection, board observer rights and consent rights before conversion. These are contractual rights against the company and founders; at a mainland LLC they should be reflected in the memorandum once the investor becomes a partner, or they may be difficult to enforce against later shareholders. Our financial promotions team can also review the round's marketing materials.

Illustrative scenario

Illustrative only; generic parties. A Dubai mainland software LLC owned by two founders wants to raise a pre-seed round from five angels using a SAFE template downloaded from the internet. One angel is based in Singapore and one in London.

The advisers recommend first inserting an ADGM holding company above the LLC, then issuing post-money SAFEs adapted to ADGM law at holding level, with a valuation cap and a discount. The SAFE is amended to name the ADGM company, to refer to ADGM courts for disputes, to define a qualifying financing in AED or USD, and to require the founders to waive pre-emption on conversion. Because the round is offered only to a small number of known investors, it stays within the private placement framework rather than becoming a public offer.

Twelve months later a seed round prices the company. The SAFEs convert into preferred shares at the cap, the holding company files the allotment with the registrar, and the cap table is updated without any change to the mainland LLC's memorandum.

Risks and common mistakes

Cross-border and tax angles

Investors from Bangladesh, India, Singapore, the UK and China will look at their own foreign investment and exchange-control rules before funding a UAE company; some outbound regimes restrict investment in instruments that are not equity, or require filings when they convert. Interest on a note may be taxable income for the investor and, depending on the investor's country, subject to reporting. UAE corporate tax applies to the issuing company, and interest deductibility rules may limit relief on accrued interest. Coordinate with tax advisers in both jurisdictions before agreeing interest and conversion terms.

What to do before you sign

• Decide which company will issue the instrument and whether a DIFC or ADGM holding company is needed first.
• Choose between a note and a SAFE based on the investor's needs and the issuing jurisdiction.
• Adapt the template: governing law, courts, definitions, currency and conversion mechanics.
• Secure pre-emption waivers, voting undertakings and powers of attorney from existing shareholders.
• Agree what happens at maturity or if no qualifying round occurs.
• Keep the round private and check the financial promotion rules that apply.
• Model the cap table after conversion at different round prices.

TRW & Co advises founders and investors on convertible note UAE structures, SAFEs, holding company set-up and the priced rounds that follow, working with locally licensed advocates where disputes reach the courts. To discuss your round, contact our Dubai team at info@trw.co or +971 58 942 1012.

Frequently asked questions

Sources and official materials

1. Federal Decree-Law No. 32 of 2021 on Commercial Companies — Securities issuance, capital increases and LLC share classes
2. Capital Market Authority — Public offers and securities advertising
3. ADGM Registration Authority — ADGM company registration and filings
4. Dubai Financial Services Authority — DIFC offers of securities and financial promotions
5. Dubai International Financial Centre — DIFC company setup and registry

General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.