The oil-producing Gulf state, the region's commercial, trade and tourism hub, currently has a Friday-Saturday weekend. From Jan. 1, however, the weekend will start on Friday afternoon, including for schools, a government circular said.
"Each company, depending on the sector they operate in and what suits and serves their business best, can choose the weekend they decide for their employees", Minister of Human Resources and Emiratisation Abdulrahman al-Awar told Reuters.
Over the past year, the UAE has taken measures to make its economy more attractive to foreign investment and talent at a time of growing economic rivalry with Saudi Arabia.
Addressing any religious sensitivities in the Sunni Muslim-ruled country, where expatriates make up most of the population, the government said work on Friday would end at 12 noon before Muslim prayers, which would be unified on Friday across the UAE.
It said the longer weekend would improve employees' work-life balance and noted that several majority-Muslim nations, such as Indonesia and Morocco, have Saturday-Sunday weekends.
The UAE said the move would "ensure smooth financial, trade and economic transactions with countries that follow a Saturday-Sunday weekend, facilitating stronger international business links and opportunities" for UAE-based and multinational firms.
The change will impact state entities like the central bank, which would communicate details about the new working hours to commercial banks, said al-Awar, adding that UAE stock exchanges would also be more integrated with global markets.
"This change will enhance the integration of the banking sector in the UAE with the banking community internationally... it will eliminate the gap that existed in the past," he said.
Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital, said the financial sector would benefit from being able to make simultaneous payment settlements with developed markets and the tourism industry would also be a beneficiary.
"It could be a good experiment for other countries in the region," he said.
Friday is a weekly holiday in the other five Gulf Arab states and many predominantly Muslim countries.
Monica Malik, an economist at Abu Dhabi Commercial Bank, said she expects many private sector companies in the UAE to follow the Saturday-Sunday weekend, describing the move as a "very meaningful development" alongside other recent reforms.
The UAE has liberalised laws regarding cohabitation before marriage, alcohol and personal status laws in addition to the introduction of longer-term visas to lure businesses and talent.
(Additional reporting by Saeed Azhar and Alexander Cornwell;Editing by Edmund Blair, David Goodman and Bernadette Baum)
By Davide Barbuscia and Ghaida Ghantous