UAE Commercial Agency Law

The UAE issued a new Commercial Agency Law, Federal Law No. 3 of 2022, which came into effect on June 16, 2023. This new law replaces the old Commercial Agency Law, Federal Law No. 18 of 1981, which had been in operation for over four decades. The new law introduces a modern regulatory framework for commercial agencies in the UAE, focusing on the autonomy of contractual relationships, besides the protection of the rights and interests of both principals and agents. This outline summarizes, in a nutshell, the key features of the new law, its key definitions, eligibility criteria, requirements concerning the contract, as well as dispute resolution.

Definition of a Commercial Agency

Article (1) of Federal Law No. (3) Of 2022 defines a “Commercial Agency” as the representation of a Principal by an Agent under a contract of agency, distribution, sale, offer or concession, or the provision of goods or services inside the State in exchange for a commission or profit. Basically, through a commercial agency arrangement, a principal is able to grant authority to an agent to conduct business activities on their behalf in the UAE.

Who Can Operate a Commercial Agency in the UAE?

According to Article (2) of the new law, the right to practice a commercial agency shall vest only in UAE nationals or persons wholly owned by UAE nationals. These are:

A natural person who is a UAE national;
A public legal person;
A private legal person owned by public legal persons; or
A private legal person wholly owned by natural persons who are UAE nationals.

Role of International Companies

Under the new law, international companies not owned by UAE citizens can also establish commercial agencies subject to the following conditions, among others:

There shall be no commercial Agent for such Commercial Agency inside the State; and.
The commercial agency is new and not previously registered in the UAE.

Furthermore, public joint-stock companies (PJSCs) that are incorporated within the UAE and where at least 51% of the shareholding belongs to nationals of the UAE are exempt from some restrictions. However, the approval of the Cabinet is necessary upon recommendation from the Minister regarding the statement of the needed procedures and conditions.

Obligatory Registration of Commercial Agencies

Article (3) of the new law provides that “The Commercial Agency activity may be practiced in the State only by the persons registered in the Commercial Agencies Register in the Ministry. Any Commercial Agency not registered in such Register shall not be valid”. Its registration is processed through the Ministry of Economy, and for its successful registration, a commercial agency has to satisfy all the specified requirements.

Duration and Term of the Commercial Agency Contract

Article (6) of the new law regulates the term of a commercial agency contract. If the contract specifies that the Agent shall establish buildings for display, goods stores or facilities for maintenance or repair, the contract term shall be five years, unless otherwise agreed upon.

Entitlement to Commission

Article (8) of Federal Law No. 3/2022 provides that “the Commercial Agent shall be entitled to commission in respect of all transactions concluded within the territory designated for the activity of the Agent, whether such transactions concluded by the principal himself or by others.”

Expiry of the Commercial Agency Agreement

Article 9(1) lists the following cases in which the commercial agency contract shall expire:

Upon the expiration of the contract term unless such term is renewed by the agreement of the contracting parties;
By the will of either the Principal or the Agent, subject to the terms and conditions of the Commercial Agency contract;
Upon the agreement of the contracting parties before the expiry of the contract term;
On the date of a final judgment against a final ruling on the expiration of the Commercial Agency; or
Any other case provided for under the present Law.

Termination and Non-Renewal Controls

Article (10) lays down the procedure for the termination and non-renewal of commercial agency contracts:

Termination: The party seeking to terminate the Commercial Agency contract, in accordance with its terms and conditions, must adhere to the following:

The party must serve a notice to the other party expressing its intention to terminate the Commercial Agency contract early.
The notice period should be no less than one (1) year prior to the proposed termination date or before the expiration of half of the contract term, whichever is shorter, unless mutually agreed otherwise by both parties.

Non-Renewal: The party that does not wish to renew the Commercial Agency contract must provide a notice of non-renewal to the other party at least one (1) year before the contract’s expiration date or before the completion of half of the contract term, whichever is shorter, unless both parties agree otherwise.

Dispute Resolution Mechanisms

The new law makes various provisions with respect to dispute resolution, including:

Commercial Agencies Committee (CAC):

The party against whom the Commercial Agency contract is being revoked may, by its terms, appeal to the Committee challenging the termination.

Either Party may provide the report prepared by a professional entity to the Committee.
The Committee shall decide the challenge within a period of 120 days from its date of filing, and if a decision is not issued during this period, then the challenge shall be deemed to have been rejected.
The Commercial Agency contract remains valid until the end of the notice period or until such time that the Committee issues a decision upon the dispute, whichever is later.

Arbitration: Article (26) provides that parties may, at their choice, use arbitration to resolve disputes. Where there is any arbitration after the CAC’s decision, such a decision is not to affect the arbitration process.

Devolution of Assets Upon Expiry

Article 9 (2) of the new law states that, unless the parties have agreed otherwise, the assets of the former Agent shall devolve to the Principal or the new Agent at fair value when the following requirements are met:

Assets, be they commodities, goods, materials, spare parts, machinery, etc., which are connected with the Commercial Agency contract.
It must be the assets which are agreed upon and in the possession of the former Agent at the time of the termination of the Commercial Agency contract, and no restriction on the transfer of the ownership of these assets should exist.

Prohibitions under the New Law

Article (20) prohibits the entry of goods, products, materials or other property that are the subject of a commercial agency unless imported through the registered agent. The customs departments may not release such imports brought by other than the Agent, except with the approval of the Ministry or the Agent. The customs departments shall notify the Ministry or the Agent, as the case may be.

Conclusion

Federal Law No. (3) Of 2022 adopts a new Commercial Agency Law for the UAE that offers a balanced regulatory framework regarding the relationship between parties to a commercial agency, giving respect for contractual autonomy, yet considering the interests of both the principal and the agent. The law also aims at accommodating international companies; hence, it was developed to give clear pointers toward dispute resolution to create a business-friendly environment that is conducive to foreign investment in the UAE economy.