A UAE bank guarantee is a formal commitment from a UAE bank to pay a specified amount to a beneficiary (typically a government authority, landlord, or contract counterparty) if the applicant fails to fulfil their obligation. Here is a complete guide to UAE bank guarantees.
When UAE Bank Guarantees Are Required
- Government tenders: Bid bonds (typically 2–5% of tender value) guarantee that the winning bidder will sign the contract
- Performance bonds: Guarantee that a construction or services contract will be performed (typically 5–10% of contract value)
- Retention guarantees: Replace retention money withheld from construction payments (more capital-efficient than withholding cash)
- Rental deposits: Replace cash security deposits for commercial real estate leases
- MOHRE guarantees: Recruitment agencies must deposit AED 500,000+ with MOHRE as a bank guarantee
- Professional licences: Some regulated activities (real estate brokerage, travel agency, money exchange) require bank guarantees with the regulatory authority
How UAE Bank Guarantees Work
The process: Step 1: Your UAE bank assesses your creditworthiness and available collateral. Step 2: You deposit cash collateral (typically 100% of the guarantee amount for new customers, lower for established relationships) or pledge assets. Step 3: The bank issues the guarantee letter to the beneficiary. Step 4: If you fail to perform, the beneficiary calls the guarantee and the bank pays from your collateral. Bank guarantee fee: 1–3% per year of the guarantee amount. Minimum fee: AED 200–500. For new UAE businesses (less than 1 year): 100% cash margin typically required.