For almost forty years, contracts in the UAE were read against Federal Law No. 5 of 1985. That changed on 1 June 2026. Federal Decree-Law No. 25 of 2025, the new Civil Transactions Law, repealed the old Civil Code in full and replaced it with a modern text.
Most business owners we speak to have heard about it. Very few have checked what it does to the contracts already sitting in their files. This guide covers the changes that matter in practice, and what you should review now.
Does the new law apply to contracts signed before June 2026?
As a general rule, no. The new law applies from 1 June 2026 and does not usually reach back to transactions concluded before that date, unless a specific provision says otherwise.
There is an important exception in practice. Long-term arrangements such as framework agreements, supply contracts and leases often generate new orders, renewals and amendments after June 2026. Each of those can bring the new rules into play. Some limitation periods also changed for periods that were still running on 1 June 2026.
So the honest answer is: your old contracts are mostly safe, but not entirely.
1. Negotiations now carry legal risk
This is the biggest shift for commercial parties. The new law sets out a statutory duty to negotiate in good faith and to disclose material information during negotiations.
Three points follow from this:
- Walking away from negotiations abusively or in bad faith can now lead to a claim for damages.
- The duty to disclose cannot be excluded or limited by contract. A clause saying “no reliance on pre-contract statements” will not save a party who hid a decisive fact.
- Deliberate silence about a material fact can count as misrepresentation, if the other side would not have signed had they known.
Our advice: keep proper records of what was disclosed during negotiations, especially in high-value deals. Emails and WhatsApp messages exchanged before signing may now matter as much as the contract itself.
2. Framework agreements are formally recognised
Many UAE businesses work under a master agreement followed by purchase orders or call-off orders. The new law now expressly recognises framework agreements, and treats them as automatically forming part of each contract concluded under them.
This brings welcome certainty. It also means that weak terms in your framework agreement will follow every order you issue under it.
3. Courts can now modify or cancel onerous contracts
The hardship rules were reworked. Where exceptional and unforeseeable events make performance excessively onerous, the court can reduce the obligation, modify the contract, or even rescind it. This power cannot be excluded by agreement.
If your contracts rely on tightly drafted force majeure and hardship clauses, they still matter. But you can no longer contract out of the court’s power entirely. Price adjustment and termination clauses should be reviewed with this in mind.
4. New ways to challenge a contract
The new law introduces a doctrine of exploitation. A contract can be challenged where one party took unfair advantage of the other’s vulnerability, inexperience or dependence. The challenge must be brought within one year, subject to an absolute three-year longstop from signing.
At the same time, some contracts that would previously have been treated as invalid now stay effective unless challenged within the time limits. Overall, this gives more certainty to deals that have already been performed.
5. Limitation periods have changed
Some deadlines you may be relying on are now different:
| Claim type | Old position | New position |
| Professional services claims | 5 years | 3 years |
| Latent defects warranty in sales | 6 months | 1 year |
| Employment-related claims | No specific tail | 2-year tail |
If you are owed money for professional services, three years now comes around faster than many people expect.
6. Powers of attorney need a second look
Under the new law, a general power of attorney covers management and preservation acts only. Selling, mortgaging, settling a dispute and similar acts require a special agency.
In practice, many companies use broad general POAs for their managers and representatives. Those documents should be checked before the next transaction, not after a counterparty or a court questions them.
7. Other changes worth knowing
- Age of majority: now 18 Gregorian years, instead of 21 lunar years. This affects contracts, shareholding and employment involving people aged 18 to 21.
- Assignment of rights: debtor consent is no longer required, and guarantees and pledges attached to the right move with it.
- Companies: single-member companies are expressly recognised, professional companies get their own framework, and non-managing partners have inspection rights that cannot be waived.
What should your business do now?
You do not need to rewrite every contract. A focused review is usually enough. Start with:
- Your standard templates: supply, service, sale and framework agreements.
- Hardship, force majeure, termination and price adjustment clauses.
- Any “entire agreement” or “no reliance” clauses that try to limit disclosure duties.
- Powers of attorney held by managers and representatives.
- Claims you are planning to bring, so limitation deadlines are not missed.
Why AML Preparation Must Come Before Banking
A business that is legally incorporated but cannot demonstrate AML readiness may struggle to open a bank account at all. Banks in the UAE conduct extensive KYC and compliance reviews before onboarding business clients. Where AML policies are absent, incomplete, or inconsistent with the company’s stated activities, the bank may decline to open the account or close it shortly after opening.
In 2026, AML compliance is not a specialist back-office function. It is an operational business reality that should be addressed as part of the setup process, not as a reactive response to a banking rejection.
Mistake 5: Overlooking Emiratisation in Mainland Business Planning
For many mainland businesses, Emiratisation is not an abstract policy concern — it is a practical compliance obligation with direct financial and operational consequences that should be built into the business plan from day one.
One of the most common UAE business setup mistakes among mainland founders is budgeting for licence fees, office rent, staff salaries, and corporate tax — while entirely ignoring Emiratisation targets and the financial contributions associated with non-compliance.
What Emiratisation Requires in Practice
For qualifying mainland companies, Emiratisation obligations require the employment of UAE nationals at specific ratios or thresholds. Businesses that fail to meet these targets may face financial contributions, restrictions on new work permit issuance, and compliance standing issues that affect other regulatory interactions.
The critical point is timing: Emiratisation requirements do not begin only when a business becomes mature or reaches a significant headcount. The applicable obligations should be assessed at the setup stage — factored into workforce planning, budget modelling, and operational structure — so that the business is prepared rather than caught out.
Mistake 6: Assuming Economic Substance No Longer Matters
A recurring and dangerous misconception in UAE business setup is the belief that economic substance requirements are no longer relevant — that because earlier ESR filing obligations evolved, the concept of substance has ceased to matter.
That belief is incomplete and commercially risky.
In 2026, substance matters more than ever — not only for formal ESR purposes, but as a practical expectation from banks, tax authorities, regulatory bodies, and commercial counterparties. A company that exists only on paper, without genuine operational activity, management decision-making, local presence, or proper staff structure, faces a widening range of risks.
| Substance Risk | Who Examines It | Potential Consequence |
| No genuine management decisions in the UAE | Tax authorities reviewing transfer pricing and corporate tax position | Tax exposure and penalties in relevant jurisdictions |
| No local operational footprint | Banks conducting ongoing KYC and account reviews | Account restrictions or closure |
| Paper company without real activity | Licensing authorities and regulators | Licence non-renewal or regulatory action |
| Substance gaps in a cross-border structure | Foreign tax authorities examining the UAE entity’s status | Loss of treaty benefits or tax structure validity |
Mistake 7: Signing Shareholder and Partnership Agreements Without Legal Review
One of the most underestimated UAE business setup mistakes — particularly among co-founders, family businesses, and joint venture partners — is proceeding with a company formation without a properly drafted shareholder or partnership agreement.
The UAE company law framework sets out default rules that govern how companies operate in the absence of specific agreement. But those default rules may not reflect what the founders actually intended, agreed commercially, or discussed informally.
Without a proper shareholders’ agreement, the business has no clear framework for: how major decisions are made and who has veto rights, what happens if a shareholder wants to exit or sell, how disputes between shareholders are resolved, what restrictions apply on competing activity, how new shares can be issued and on what terms, and what protections minority shareholders have against dilution or exclusion.
These gaps become critical pressure points when the business grows, when commercial relationships change, or when a dispute arises. And at that stage, the absence of a shareholders’ agreement is not merely a documentation gap — it is a governance failure that may require expensive legal proceedings to resolve.
Mistake 8: Failing to Structure the Business for Banking From the Start
Many businesses in the UAE are formed without any consideration of whether the resulting structure will actually pass bank compliance review. This is a costly oversight.
UAE banks have significantly tightened their onboarding processes. They conduct detailed KYC reviews, scrutinise the source of funds and capital, review the business model for commercial plausibility, assess UBO structures for transparency, and evaluate whether the company’s planned activity matches its licence and stated purpose.
A business formed in a jurisdiction that banks are cautious about, operating in a sector that attracts heightened scrutiny, with an opaque ownership structure, or with a business model that is difficult to explain clearly, may find that obtaining a business bank account is significantly more difficult than obtaining the trade licence itself.
The smarter approach is to consider banking requirements as part of the setup design — not as a separate problem to solve after formation.
The Cascading Effect: How One UAE Business Setup Mistake Triggers Another
One of the most strategically important realities of 2026 compliance in the UAE is that regulatory failures do not remain isolated. A single setup error tends to create pressure across multiple compliance areas simultaneously.
| Initial Mistake | Likely Knock-On Effect | Commercial Consequence |
| Wrong jurisdiction choice | Business activities outside permitted scope; need for restructuring or additional permits | Time loss, duplicate costs, and operational disruption |
| No corporate tax registration | Accumulating penalties and compounding compliance exposure | Increased operational cost and regulatory attention |
| Weak UBO or AML records | Banking friction, extended KYC review, or account rejection | Delayed banking, restricted transactions, reputational risk |
| No shareholders’ agreement | Governance paralysis or costly legal dispute when conflict arises | Business interruption and potential dissolution risk |
| Ignored Emiratisation | Financial contributions, permit restrictions, and compliance standing issues | Increased staffing costs and regulatory complications |
The lesson is that UAE business setup in 2026 should be approached as an integrated legal and compliance exercise — not as a checklist of unrelated tasks.
A Smarter Approach: What to Do Before Setting Up a Business in the UAE
Step 1: Define Your Business Model and Commercial Objectives First
Before choosing any structure, identify precisely: what services or products you will offer, who your customers are and where they are located, whether your activity is regulated or subject to sector-specific licensing requirements, and what your hiring and staffing plan looks like over the first three years.
Step 2: Assess Jurisdiction Options Against Your Actual Business Requirements
Evaluate free zone and mainland options against the commercial and compliance requirements identified in Step 1 — not against setup package prices. Consider banking requirements, tax profile, Emiratisation implications, and restructuring risk if the business grows beyond the initial structure.
Step 3: Address Corporate Tax Registration and Compliance From Formation
Corporate tax registration should happen at the formation stage, not after the business is already operational. Understand your record-keeping obligations, tax profile, and any free zone qualifying conditions that affect your structure from day one.
Step 4: Build Accurate UBO Records and AML Readiness Before Banking
Map ownership and control clearly from the beginning. Prepare AML policies and documentation before approaching banks for account opening. Treat banking compliance as a parallel process to formation — not a sequential one.
Step 5: Draft Proper Shareholder and Governance Agreements
Do not rely on default company law rules to govern the relationship between founders, investors, and shareholders. A properly drafted shareholders’ agreement, reviewed by a qualified legal adviser, is a fundamental governance document — not optional paperwork.
Step 6: Plan for Emiratisation and Substance Requirements
Mainland businesses expected to scale should factor Emiratisation obligations into their workforce plan and budget from the outset. All businesses should ensure that the company is structured to demonstrate genuine operational substance — not just formal compliance on paper.
Where Regulatory Disputes Go in the UAE
Businesses should understand that regulatory complications arising from UAE business setup mistakes do not resolve themselves informally. Depending on the nature of the issue, disputes or enforcement actions may involve the Federal Tax Authority, the relevant licensing authority, the Ministry of Economy, the Central Bank of the UAE, the Ministry of Human Resources and Emiratisation, or other supervisory and administrative bodies.
Challenges may arise in relation to tax penalties and assessments, licensing sanctions or non-renewal, banking restrictions, AML-related enforcement, compliance notices, or formal administrative proceedings. The regulatory system in 2026 is faster, more data-driven, and significantly less tolerant of informal explanations than it was in earlier periods.
Businesses are therefore far better protected by early, correct legal structuring than by reactive responses to enforcement action.
How Omam Legal Consultancy Helps Businesses Avoid UAE Setup Mistakes
At Omam Legal Consultancy, we do not approach UAE business setup as a company formation package. We advise founders, investors, and operating businesses on the legal side of structuring a company correctly from the outset — so that it works commercially, legally, and practically.
Our advisory work covers:
- Jurisdiction selection based on business model, activity risk, and commercial objectives
- Business activity review and regulated sector assessment
- Corporate tax registration, compliance planning, and free zone qualification assessment
- UBO mapping, register preparation, and governance documentation
- AML compliance readiness for regulated and non-financial businesses
- Shareholders’ agreements, JV structuring, and partnership governance
- Emiratisation planning and workforce compliance assessment
- Banking structure advice and KYC readiness support
- Operational substance review and long-term compliance planning
- Restructuring advice where an existing formation no longer fits the business
Our role is not to sell a company formation package. Our role is to protect the business behind the licence — ensuring that the structure chosen at the outset supports the business the founder is actually building.
The UAE’s new Civil Transactions Law 2026 introduces important changes affecting existing contracts, commercial negotiations, liability, and business relationships. Businesses should review their commercial contracts, corporate agreements, and shareholder agreements to ensure compliance with the updated legal framework. The new law also impacts corporate restructuring, powers of attorney, limitation periods, and dispute resolution. Reviewing contractual terms early can help businesses reduce legal risks and avoid costly disputes. Our experienced Legal Notice Services can help identify potential issues, assess contractual obligations, and recommend appropriate amendments to protect your business interests in the UAE.
How Omam Legal Consultancy can help?
Our team reviews existing contracts against the new Civil Transactions Law and updates templates so they work under the new rules. We also advise on disputes where the old law and the new law may both be relevant.
Frequently Asked Questions About Intellectual Property Protection in the UAE
1. When did the new UAE Civil Transactions Law come into effect?
Federal Decree-Law No. 25 of 2025, known as the new UAE Civil Transactions Law, came into effect on 1 June 2026, replacing the previous Federal Law No. 5 of 1985. The new legislation introduces significant changes to contractual relationships, commercial negotiations, liability, and other civil matters. Businesses should understand how these changes affect their legal obligations and day-to-day operations. Reviewing existing agreements and updating standard contract templates where necessary can help companies reduce legal risks and maintain stronger contractual protection.
2. Does the new UAE Civil Transactions Law apply to existing contracts?
Generally, the new law does not apply retroactively to transactions concluded before 1 June 2026, subject to applicable transitional provisions and specific exceptions. However, businesses should carefully assess long-term agreements, including supply contracts, leases, and framework agreements, particularly where renewals, amendments, or new purchase orders occur after the effective date. Certain limitation periods may also be affected by transitional rules. Companies should seek appropriate legal advice before assuming that an existing agreement remains entirely unaffected by the new legislation.
3. What changes does the new law introduce for commercial negotiations?
The new law introduces statutory duties concerning good-faith negotiations and the disclosure of material information. Parties may face legal consequences if they withdraw from negotiations abusively, deliberately conceal important facts, or engage in misleading conduct that affects the other party’s decision. Certain disclosure obligations cannot be excluded or limited through contractual clauses. Businesses should therefore maintain clear records of negotiations, including emails, written offers, WhatsApp communications, and information shared during due diligence. Proper documentation can help demonstrate transparency and reduce the risk of disputes before or after a contract is signed.
4. Can UAE courts modify or cancel a contract due to unforeseen circumstances?
Yes. Under certain exceptional and unforeseeable circumstances that make contractual performance excessively onerous, the courts may have the authority to reduce obligations, modify contractual terms, or rescind a contract, subject to the applicable legal requirements. This may be relevant to businesses experiencing significant changes in operating costs, supply conditions, or other circumstances affecting contractual performance. Although force majeure, hardship, termination, and price-adjustment clauses remain important, businesses should not assume that contractual wording can exclude every statutory court power. Reviewing these provisions can help companies prepare for unexpected commercial difficulties.
5. Do businesses need to review their existing contracts under the new law?
Yes. Businesses should conduct a focused review of their standard supply agreements, service contracts, sale agreements, framework agreements, and corporate documents. Particular attention should be given to good-faith negotiation obligations, disclosure requirements, hardship provisions, force majeure clauses, termination rights, and limitation periods. Companies should also examine entire-agreement and non-reliance clauses to determine whether their wording remains appropriate under the new legal framework. A structured review can help identify outdated provisions, reduce the possibility of contractual disputes, and clarify the rights and responsibilities of each party. Legal advice may be particularly valuable for high-value or long-term commercial arrangements.
6. How does the new law affect powers of attorney in the UAE?
The new law generally limits a general power of attorney to management and preservation acts. Certain important transactions, such as selling or mortgaging property and settling disputes, may require a special power of attorney containing appropriate authorisation. Businesses should review the powers of attorney held by directors, managers, employees, and authorised representatives before relying on them for significant transactions. An authorisation that is too general may not provide sufficient authority for a particular legal act. Reviewing these documents in advance can help prevent transaction delays, challenges to an agent’s authority, and avoidable legal complications.
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