UAE Law and Practice Contributed by: Arsalan Tariq, Nil Acar and Ahmed Kamran, BSA LAW
can only be directed toward transactions and activi- ties that are permissible under the Sharia principles. 3.5 Agent and Trust Concepts The facility agent and security agent concepts are well recognised in the UAE. The trust concept is not rec- ognised in the UAE. Parallel debt structures are com- monly used to replicate trust-like security arrange- ments. 3.6 Loan Transfer Mechanisms Loans may be transferred by novation, assignment or sub-participation. Novation requires borrower consent and results in a clean substitution of parties. Assign- ment of rights is permitted, though security interests may need to be re-registered unless held through a security agent. Sub-participation remains common, especially for lenders seeking to avoid re-perfection of security. 3.7 Debt Buyback It is legally possible for a borrower or its sponsor to repurchase outstanding debt, provided that the under- lying loan documents do not prohibit or restrict this. The permissibility and mechanics are typically a mat- ter of contractual negotiation, and lenders may impose conditions or consents before allowing a buyback. 3.8 Public Acquisition Finance There is no statutory “certain funds” requirement in UAE law for public acquisition financings. Acquisition financings are privately negotiated. 3.9 Recent Legal and Commercial Developments Key developments include the widespread adoption of Secured Overnight Financing Rate (SOFR) and other risk-free rates in place of London Inter-Bank Offered Rate (LIBOR), requiring adjustments to loan agreements. 3.10 Usury Laws As a matter of judicial practice, UAE courts often limit the enforceability of excessive interest. In particu- lar, compound interest and interest that exceeds the principal amount are generally not upheld, and com- mercial interest is typically reduced if it is considered above customary thresholds (12% per annum). How-
ever, Dubai courts have occasionally departed from these limitations and enforced higher rates in com- mercial contexts. Islamic financings remain subject to Sharia prohibitions on riba, meaning that charging or paying conventional interest is not permissible. 3.11 Disclosure Requirements Loan and security agreements are private contracts and are not subject to public disclosure. Public com- panies must disclose material financings under stock exchange rules, but such disclosures do not expand to the disclosure of full agreements. Under the current tax regime in the UAE, applicable withholding tax rate is set at 0%, therefore there is no withholding tax imposed on payments of principal or interest to lenders, whether domestic or foreign. While interest paid to non-resident lenders is consid- ered state-sourced income and could, in principle, fall within the scope of withholding tax, no tax is actually withheld at this time. This applies to both conventional loans and Islamic finance structures. Consequently, payments of interest or similar financing returns (eg, profit in murabaha arrangements) can be made free of any UAE withholding tax obligations. 4. Tax 4.1 Withholding Tax This position may change if the UAE government amends the withholding tax rate in the future, but as of now, no withholding tax applies to such payments. 4.2 Other Taxes, Duties, Charges or Tax Considerations The UAE remains a tax-efficient jurisdiction for both lenders and borrowers. There are no stamp duties, registration taxes, or documentary taxes imposed on loan agreements or the creation of guarantees and security interests. However, lenders should be mindful of certain practical costs and regulatory considera- tions that may arise in the course of structuring and documenting such transactions. • Registration fees – where security is taken over assets such as shares, real estate or movable property, it may need to be registered with the
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