Letters of credit are the backbone of UAE import and export trade, giving sellers a bank guarantee of payment and buyers assurance that goods are shipped before money moves. This guide explains how LCs work and the rules that govern them.
| Fact | Value | Source |
|---|---|---|
| Documentary LC rules | ICC UCP 600 | CBUAE / ICC |
| Standby LC rules | ISP98 / URDG 758 | CBUAE / ICC |
| Documentary collections | ICC URC 522 | CBUAE / ICC |
| Islamic trade finance | Murabaha, Wakala available | CBUAE |
| Compliance | Mandatory KYC/AML | CBUAE Guidelines |
Letters of credit are the backbone of UAE import and export trade, giving sellers a bank guarantee of payment and buyers assurance that goods are shipped before money moves. This guide explains how LCs work and the rules that govern them.
A letter of credit (LC) is a written undertaking by the buyer's bank to pay the seller once the seller presents shipping documents that exactly match the LC terms. It shifts payment risk from the trading partners onto the banks.
In the UAE, documentary letters of credit follow the ICC Uniform Customs and Practice (UCP 600); standby LCs follow ISP98 or URDG 758; and documentary collections follow URC 522. UAE banks apply these international rules directly.
Both conventional and Islamic (Sharia-compliant) trade finance are widely available. Islamic structures such as Murabaha and Wakala achieve the same commercial result as a conventional LC while complying with Sharia.
Because documents must match the LC exactly, small discrepancies — a misspelt name, a late shipment date — can delay or block payment. Careful document preparation is the single biggest factor in getting paid smoothly.
UAE banks must run know-your-customer and anti-money-laundering checks on every trade finance transaction under Central Bank rules, so allow time for compliance review when opening an LC.
Laws and regulations change. Always verify with the relevant authority before acting on this information.
Our team provides tailored advice for your specific situation.
Book consultationAsk the AI Advisor