The UAE has built its reputation as one of the world’s most accessible places to do business. Company formation is fast, the regulatory environment is internationally minded, and the country sits at the centre of trade flows between Europe, Asia, and Africa. That accessibility, however, creates a quiet hazard for the foreign businesses that benefit from it: the assumption that a contract which performs well in London, New York, or Singapore will perform equally well here.
In practice, a master services agreement, distribution contract, or shareholders’ agreement that reliably protects a multinational in other jurisdictions may operate quite differently before a UAE forum. The deficiency is rarely one of drafting quality; it is one of jurisdictional fit. A contract prepared for one legal system and adopted without adaptation for another tends to expose its weaknesses at the point of enforcement, when they are most costly to remedy. Understanding where the gaps lie is the difference between a document that secures a commercial relationship and one that merely describes it.
A Multi-Layered Legal Landscape: Civil Law and Common Law Under One Flag
The first point of confusion for international counsel is that the UAE is not a single legal jurisdiction in the way the term is usually understood. It operates several frameworks at once.
On the mainland (commonly described as “onshore”), the courts apply a civil law system built on codified statutes rather than judicial precedent. The cornerstone of this system is the Civil Transactions Law. This is also the most significant recent development for anyone drafting contracts here: the new Civil Transactions Law, issued as Federal Decree-Law No. 25 of 2025, came into force on 1 June 2026, replacing the Civil Code that had governed civil and commercial relations for decades. The new Code preserves the core principles of UAE contract law while modernizing areas such as good faith, pre-contractual disclosure, contract interpretation, and civil liability. Contracts concluded after that date generally fall under the new framework, and templates that were drafted against the old Code should be reviewed against it.
Alongside the onshore system sit the financial free zones, principally the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). These are independent, English-language jurisdictions with their own common law frameworks and their own courts, modelled closely on English law. Parties can, in many cases, choose to bring their contract within DIFC or ADGM jurisdiction even where the underlying business sits on the mainland.
The practical consequence is straightforward. A contract must be built for the system that will actually adjudicate it. Drafting habits that work under common law, where the written word of the contract is largely the beginning and the end of the analysis, do not map neatly onto the onshore civil law approach, where codified mandatory rules and the court’s interpretive role carry real weight.
High-Risk Areas and Common Pitfalls
The mandatory law trap
The most common and most expensive error is treating UAE law as fully “contractable.” Certain rules are matters of public order and will override whatever the parties have agreed.
Commercial agency and distribution arrangements are the classic example. These are governed by the Commercial Agency Law (Federal Decree-Law No. 3 of 2022), in force since June 2023, which modernized a regime that had stood since 1981. The newer law is more balanced between principals and agents and, for the first time, opened the door to early termination and non-renewal of registered agencies subject to specified conditions, including extended notice periods and potential compensation. What it did not do is allow parties to simply draft their way out of the protective framework. A registered commercial agency carries statutory consequences that a foreign principal cannot neutralise with a standard termination clause borrowed from an international template. Distribution and agency relationships need to be structured with these mandatory features in mind from the outset, not retrofitted once a dispute arises.
The bilingual conflict
English is the working language of UAE commerce, and most cross-border contracts are negotiated in it. The onshore courts, however, operate in Arabic. Any dispute before a mainland court will require an official Arabic translation, and where the Arabic and English versions diverge, it is the Arabic text that prevails in those courts. A poorly produced translation can therefore alter the meaning of a clause that the parties believed was settled.
The DIFC and ADGM courts, by contrast, operate in English and accept English-language documents directly. The right approach depends on where a dispute is likely to be heard. For onshore-facing contracts, the better practice is a synchronized dual-language document, prepared in parallel rather than translated as an afterthought, with a clear prevailing-language clause and a certified legal translation. Both versions should be reviewed by bilingual lawyers so that the Arabic text says, precisely, what the commercial parties intend.
Liquidated damages are not guaranteed
Western-style liquidated damages clauses carry an assumption that does not hold onshore: that a pre-agreed figure will be enforced as written. Under UAE law, a court retains a statutory power to revisit pre-agreed compensation. The provision previously known as Article 390 of the 1985 Civil Code allowed the court, at the request of either party, to adjust the agreed amount up or down so that it matched the loss actually suffered, and that power could not be excluded by agreement. The new Civil Transactions Law continues to give the court this supervisory role over pre-agreed compensation while codifying more clearly the circumstances in which it may intervene.
The drafting takeaway is to treat a damages or penalty figure as a starting position rather than a guaranteed recovery. Clauses should be supported by a genuine pre-estimate of loss, and the contracting party should be prepared to evidence actual damage if the figure is challenged.
Best Practices: Writing an Enforceable UAE Contract
Clear governing law and jurisdiction clauses
The single most valuable clause in a UAE contract is often the one that decides where a dispute will be settled. If the parties want the certainty of a common law forum, an opt-in to the DIFC or ADGM courts must be drafted explicitly and correctly. Vague or inconsistent wording invites a jurisdictional fight before the substantive dispute is even reached. It is also worth knowing the limits: an onshore court may decline to give effect to a foreign forum clause where the chosen forum has no real connection to the dispute or where the matter touches mandatory UAE rules, and certain categories of contract remain reserved to UAE law and the onshore courts.
Termination mechanics
Termination is an area where common law drafting instincts can mislead. UAE law has traditionally leaned toward dissolution of a contract by mutual consent or by court order, rather than by the unilateral exercise of a “termination for convenience” right of the kind common in English-law agreements. Such rights are not impossible to build in, but they require clear, deliberate wording to operate as intended, and the new Civil Code’s treatment of termination should be reflected in any clause drafted for an onshore contract. Ambiguous termination language is a frequent source of litigation precisely because the default position is not what an international party assumes.
Arbitration that survives a challenge
Arbitration is widely used in the UAE and is governed by the Federal Arbitration Law (Federal Law No. 6 of 2018), which is broadly aligned with the UNCITRAL Model Law. There is, however, a recurring trap. The law requires that an arbitration agreement be concluded on behalf of a company by a representative with specific authority to agree to arbitration; without it, the arbitration agreement can be treated as invalid, and a lack of such authority is a recognised ground for setting an award aside. A signatory authorised to enter the underlying contract is not automatically authorised to bind the company to arbitration.
The practical safeguard is to confirm, before signing, that the signatory’s authority to arbitrate is established, whether through the company’s constitutional documents or a specific power of attorney, and to name a recognised seat and institution, such as DIAC, the DIFC, or the ADGM, so that the resulting award is enforceable under the New York Convention.
Conclusion
An effective commercial contract in the UAE is not a formality to be completed at the end of a negotiation. It is the mechanism that keeps a business relationship working and keeps disputes out of court. Enforceability is designed in at the drafting stage, by aligning the document with the system that will adjudicate it, respecting the mandatory rules that override private agreement, and giving proper attention to language, damages, termination, and dispute resolution. The cost of getting this right is modest. The cost of discovering a gap during enforcement rarely is.
Kisser Legal works with multinational corporations, founders, and investors to translate commercial intent into agreements that hold up under UAE law and in UAE forums. To review an existing contract portfolio against the new Civil Transactions Law, or to draft an agreement built for the jurisdiction it will operate in, request a comprehensive contract review or custom drafting support from Kisser Legal’s corporate and commercial law experts.