Legislation Details
- Full Title: Federal Decree-Law on Finance Lease
- Law Type: Federal Decree-Law
- Law Number: [number] of 2023
- Issued Date: 25 Sep 2023
- Effective Date: 29 Mar 2024
- Official Gazette: No. 760
- Sector: Economy and Business
- Status: Active
- Number of Articles: 71
- Chapters/Parts: 10
- Amendments: 0
Summary
The Federal Decree-Law on Finance Lease regulates the practice of finance leasing in the United Arab Emirates. It establishes the legal framework for finance lease agreements, defining the rights and obligations of lessors, lessees, and suppliers. The law aims to provide clarity and certainty in finance lease transactions, promoting the development of this sector and supporting businesses and individuals in accessing equipment, machinery, and other assets through leasing arrangements. This legislation is significant for companies and individuals engaged in finance leasing activities, as it sets out the regulatory requirements, dispute resolution mechanisms, and penalties for non-compliance, thereby enhancing the overall legal environment for finance leasing in the UAE. (Federal Decree-Law on Finance Lease, 2023)
What is the scope and purpose of this law?
The Federal Decree-Law on Finance Lease applies to any finance lease of an asset in the UAE or a free zone not governed by special provisions regulating finance leases, if the lessee's business headquarters is located in the UAE or a free zone, or if the lease agreement provides for the application of UAE laws. (Federal Decree-Law on Finance Lease, 2023, Art. 2)
What are the key definitions under this law?
- Asset: Every non-consumable object owned or legally possessed by the lessor, including off-plan real estate units, capital and future assets, equipment, plants, and movable property. Certain assets, such as aircraft, marine vessels, cash, and investment bonds, are excluded. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
- Finance Lease: A lease whereby the lessor leases out an asset to the lessee against a rent for a specific term, while the lessee may be granted an option to own the asset. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
- Lease Agreement: An agreement whereby the lessor leases out an asset to the lessee. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
- Lessee: A person that acquires the right to possession and use of a leased asset under the lease agreement. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
- Lessor: A legal person that grants another person the right to possession and use of a leased asset under the lease agreement. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
- Supplier: A person from whom the lessor acquires the leased asset under the supply contract in a tripartite lease. (Federal Decree-Law on Finance Lease, 2023, Art. 1)
What are the main obligations and requirements?
The law imposes several key obligations on the parties to a finance lease agreement:
- The lease agreement must be in writing, otherwise it will be null and void. (Federal Decree-Law on Finance Lease, 2023, Art. 5(4))
- The lease agreement must include certain minimum details, such as the names and details of the parties, a description of the leased asset, the term of the agreement, the rent amount and payment schedule, and the rights and obligations of the parties. (Federal Decree-Law on Finance Lease, 2023, Art. 5(2))
- The lessee is obligated to maintain the leased asset. (Federal Decree-Law on Finance Lease, 2023, Art. 18)
- The lessor must ensure the lessee's quiet possession of the leased asset. (Federal Decree-Law on Finance Lease, 2023, Art. 16)
What licensing, registration, or approval requirements exist?
The law establishes the following licensing and regulatory requirements:
- The Central Bank of the UAE regulates, licenses, and supervises the finance lease activity of banks, companies, and institutions governed by the legislation in force in the UAE. The Central Bank issues the conditions and controls for engaging in this activity. (Federal Decree-Law on Finance Lease, 2023, Art. 4(1))
- For legal persons other than those governed by the Central Bank, the Cabinet determines the authority or authorities responsible for regulating, licensing, and supervising the finance lease activity, and issues the conditions and controls for engagement in this activity. (Federal Decree-Law on Finance Lease, 2023, Art. 4(2))
- The Minister of Finance issues the regulations necessary for developing the provisions of the finance lease accounting treatment. (Federal Decree-Law on Finance Lease, 2023, Art. 4(3))
- The relevant authorities in the UAE amend or adapt their procedures to register cases where assets become leased under a lease agreement governed by this law. (Federal Decree-Law on Finance Lease, 2023, Art. 4(4))
What rights and protections does this law provide?
The law grants several rights and protections to the parties involved in finance lease transactions:
- The rights of the parties to the finance lease agreement are enforceable and legally effective against the lessor's creditors. (Federal Decree-Law on Finance Lease, 2023, Art. 8(1))
- The invalidation or termination of the supply contract does not impact the finance lease agreement. (Federal Decree-Law on Finance Lease, 2023, Art. 8(2))
- In a tripartite lease, the lessee is granted the status of a beneficiary of the supply contract, with the same rights as if the lessee were a party to the supply contract. (Federal Decree-Law on Finance Lease, 2023, Art. 7(1))
- The lessor is generally not liable to the lessee or third parties for damages caused by the leased asset, within the limits of its capacity as a lessor, unless otherwise agreed. (Federal Decree-Law on Finance Lease, 2023, Art. 9)
Which authorities or bodies are responsible for enforcement?
The law establishes the following authorities and bodies responsible for the enforcement and governance of finance lease activities:
- The Central Bank of the UAE regulates, licenses, and supervises the finance lease activity of banks, companies, and institutions governed by the legislation in force in the UAE. (Federal Decree-Law on Finance Lease, 2023, Art. 4(1))
- The Cabinet determines the authority or authorities responsible for regulating, licensing, and supervising the finance lease activity of legal persons other than those governed by the Central Bank, and issues the conditions and controls for engagement in this activity. (Federal Decree-Law on Finance Lease, 2023, Art. 4(2))
- The Minister of Finance issues the regulations necessary for developing the provisions of the finance lease accounting treatment. (Federal Decree-Law on Finance Lease, 2023, Art. 4(3))
- The relevant authorities in the UAE amend or adapt their procedures to register cases where assets become leased under a lease agreement governed by this law. (Federal Decree-Law on Finance Lease, 2023, Art. 4(4))
What are the penalties for non-compliance?
The law does not specify any penalties for non-compliance. The legislation does not provide details on penalties. (Federal Decree-Law on Finance Lease, 2023)
When did this law come into effect?
The Federal Decree-Law on Finance Lease was issued on 25 September 2023 and will come into effect on 29 March 2024. (Federal Decree-Law on Finance Lease, 2023)
How does this law interact with other UAE legislation?
The law references the following related legislation:
- The Constitution of the United Arab Emirates
- Federal Law No. (1) of 1972 on the Competences of Ministries and the Powers of Ministers, as amended
- Federal Law No. (8) of 2018 on Finance Lease
- Federal Law No. (4) of 2020 Guaranteeing Rights to Movable Property
The law does not specify how it interacts with or amends these other pieces of legislation. (Federal Decree-Law on Finance Lease, 2023)
Source Documents
This article analyses Federal Decree-Law on Finance Lease for legal research and educational purposes. For the purpose of interpretation and application, reference must be made to the original Arabic text. In case of conflict, the Arabic text prevails. This does not constitute legal advice.