15 Nov 2023

How the New Commercial Transactions Law Changed the UAE’s Contractual Landscape

Authored by: Nazim Alom and Zaid Qasem

In Brief:

  1. On 2 January 2023, the new Commercial Transactions Law (Decree 50/ 2022) (New Law) came into effect in the United Arab Emirates, replacing the previous Commercial Transactions Law (Law no. 18 of 1993) (Old Law).
  2. The amendments have had a significant impact upon the facilitation of contracts and have updated the conditions of contracts to take into account the current technological and industrial landscape.
  3. The amendments have also helped catalyse the economy by lowering the debt stress permitted in previous contracts.

The New Law marks a significant departure from the previous Commercial Transactions Law, which governed the UAE’s commercial transactions for nearly three decades. The New Law, designed to boost and facilitate commerce and transactions, has taken into account advancements in industry and technology. Although the New Law retains many features of the Old Law, it also introduces essential modifications. This article takes a look at key changes that may have improved the approach to commercial transactions. 

Interest Rates and Compounding

In an attempt to reduce the debt burden for businesses in the UAE, the New Law has reduced the cap for interest rates. Where interest rates have not been determined in a contractual agreement, there is an interest rate cap of 9%. This is a reduction from the Old Law, where interest rates left undetermined in a contractual agreement were capped at 12%. This has allowed lower debt costs and increased borrowing, attempting to bolster the UAE markets. In addition, compounded interest has been expressly prohibited in the New Law as there was ambiguity in the Old Law (Article 88). 

Commercial Sale Contracts

The New Law indicates important clauses that should be included in a commercial sale contract (Article 94). Significantly, this includes a mechanism for resolving disputes that highlights the importance of including provisions for disputes in every commercial sale contract, rather than after the dispute has become apparent. 

Furthermore, a provision has been included in the New Law regarding international commercial sale contracts. Parties may now agree on applying the International Chamber of Commerce’s general conditions for international contracts (Article 130). This significantly reduces the negotiation phase of international contracts.

Limitation Periods

The New Law has reduced limitation periods for claims between parties conducting business.. The Old Law set a 10-year limitation period, whereas under the New Law, claims are to be brought no later than 5 years from the date the obligation fell due. However, it further widens the gap between this law and Article 473 of the Civil Code, which allows a 15-year limitation period for civil contractual claims. 

Islamic Finance

The New Law bolsters the UAE's position in the realm of Islamic finance and looks to expand and develop these laws. This emphasis can be seen in Part 6, which centers on dealings with Islamic financial institutions. These institutions are defined as those adhering to Islamic Shari’ah regulations. Within this section, several Shari’ah principles are incorporated, and the New Law has introduced detailed descriptions on particular Islamic contracts such as Murabaha (cost-plus financing), Istisna’a (construction/manufacturing financing), Ijarah (sharia lease), and Salam (forward sale) that have made significant changes to the contractual mechanisms available to parties in the UAE. 

For example, Article 495(3) prohibits including maintenance and insurance costs in the periodic rental fees within an Ijarah framework. Any breach of this provision renders such contracts void. 

In addition, Article 475 specifies consequences relevant if a contractual party defaults on a promise to contract. If a promisor defaults with no reasonable excuse, compensation will be required.

Article 477 of the New Law states that the responsibilities related to property ownership, including any unforeseen damages or defects, transfer to the contracting party upon receiving the property. This holds true even if the parties term the transaction as a lease. In such cases, Islamic banks will assume both the risks and benefits associated with property ownership. 

Article 495 of the Updated Law addresses accountability for hidden defects when the property is part of an Ijarah agreement. According to this article, the lessor, which is typically the Islamic bank, cannot forgo responsibility for any concealed issues in the leased property. This means Islamic banks are now tasked with thoroughly examining properties to ensure no defects exist or potential malfunctions that could impede its intended use, regardless of whether the issue arises from the bank's actions or factors beyond its control.

Incorporating Modern Technology In Trade

The New Law now incorporates 'virtual commercial business' into its framework, addressing operations conducted digitally or through cutting-edge tech solutions. In addition to acknowledging the Electronic Transactions Law, the Commercial Code now endorses contracts and deals facilitated online, via blockchain, and similar platforms. Additionally, traders, including financial institutions, can now opt for digital storage of records, rather than solely the traditional hard copy system. Cheques can now be presented to a bank or their amounts set aside using phone calls or other legally recognized methods, including contemporary technological solutions, coordinated between the presenting bank and the drawee bank.

The New Law supports trade and simplifies the process of starting and completing commercial contracts, irrespective of their physical or virtual nature. It has been updated to include modern technology, especially focusing on virtual assets. Article 5 of the New Law lists activities recognised as commercial, and now "virtual assets transactions" are included. The New Law has expanded to consider activities, including websites, artificial intelligence applications, and creating, leasing, managing and selling electronic platforms. Under the New Law, a commercial enterprise is now defined to encompass both traditional and virtual business activities, whether they operate through the use of advanced technology or through traditional methods (Article 10). 


The New Law stipulates that guarantees provided in commercial transactions are regarded as joint and several, meaning there is no need to specify the debtor’s joint obligation. The New Law specifies that if there are multiple guarantors, such guarantors share joint liability with each other, as well as with the debtor (Article 69 (2)). 

Furthermore, the New Law allows banks to reject payments to a beneficiary if a court issues an attachment order on the secured amount held by the issuing bank. To obtain such an order or judgment, the applicant must present substantial justification in their request or claim.

Adequate Security

The New Law requires that adequate security is obtained against loans in the context of banking activity. This is similar to the position under the Banking Law’s Article 121(1), but broadens it to include all commercial loan borrowers including retail and corporate lending whereas the Banking Law limits application to sole proprietorships and individuals. Determining the adequacy of security may give rise to challenges in implementation of this requirement.


As shown above, the amendments to the Old Law effected under the New Law have made commercial transactions and contracts quicker to finalise, more open to innovative contractual solutions, and, in many ways, more advanced yet more simple. We believe the UAE’s aim of supporting the nation’s economy is, in general terms, well served by these amendments, and we have found that clients of our corporate/commercial teams and our litigation teams are substantially satisfied with the enhancements.

If you need any assistance with commercial contracts or potential transactions, you may contact our Corporate M&A team.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.