His Highness Sheikh Mohammed bin Zayed Al Nahyan, President of the United Arab Emirates, issued the Federal Decree-Law No. (32) of 2023 on Finance Lease (the New Finance Lease Law) on 25 September 2023, which repealed the Federal Law No. (18) on Finance Lease (2018 Finance Lease Law).

The key point that defines a lease as a finance lease for the purposes of the New Finance Lease Law continues to be, as was the case under the 2018 Finance Lease Law, the existence of a purchase option in favour of the Lessee.

The New Finance Lease Law applies where either: (a) the asset in question; or (b) the lessee’s business headquarters, is, in each case, located “onshore” in UAE or in freezones where there are no special regulations applicable to finance leases and in instances where the lease agreement provides for UAE laws as the governing law thereof. The New Finance Lease Law will not apply to: (a) aircraft, helicopters, aircraft engines, marine vessels and other assets that are registrable in “special registers” either under UAE law or pursuant to the international treaties or conventions to which the UAE accedes; (b) cash; (c) investment bonds; and (d) land granted by the UAE government. The New Finance Lease Law makes reference to the Federal Law No. (4) of 2020 on Guaranteeing Rights Related to Movables (the Movables Law) and affirms the treatment of a lessor’s right under a finance lease arrangement as a security interest under the Movables Law.

The UAE Central Bank (UAECB) is the authority designated to regulate, license and supervise the finance lease activity that is practiced by “banks, companies and institutions governed by” the UAECB and is expected to issue further regulations in this respect. For all other natural persons or entities seeking to engage in finance lease activity, the UAE Federal Cabinet will, at the proposal of the Minister of Finance, determine the relevant authority that will supervise and regulate the finance lease activity and will issue the further regulations applicable to those persons. Further regulation under the New Finance Law is eagerly awaited by all industry participants.