The issuance of UAE Federal Law No. 8 of 2018 on Financial Leasing aims to facilitate the ease of availing financing and conducting business for small to medium enterprises (SMEs). The new Law has been in effect since 1 January 2019.
The SME sector plays a critical role in achieving the UAE government’s developmental goals, as SMEs constitute the backbone of its economy. In Dubai in particular, SMEs represent 95% of all establishments that are registered in the Emirate. Thus, the government has taken steps to strengthen the performance of SMEs over the last few years, equipping them with the right tools and financing mechanisms.
What is the Financial Leasing Law?
Effectively, the Law regulates finance leasing in the UAE and specifies the commercial arrangements between parties to a leasing contract. Some of the key principles and enhancements introduced by the Law include:
- Registration with the UAE Central Bank: all entities facilitating financial leasing activities in the UAE (Leasing Company) are required to secure a license to operate from the UAE Central Bank. Non-compliance will be subject to imprisonment or fines.
- Contractual arrangements: financial leasing is governed by a supply contract (between the Leasing Company and the supplier) and a leasing contract (between the Leasing Company and the Lessee) for the purchase and use of the Leased Assets respectively.
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