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Agency Laws in the United Arab Emirates

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


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The major piece of legislation that controls commercial agreements in the United Arab Emirates is the Agency Law. This is the setup that allow international enterprises to distribute their products in the UAE. This law establishes the distinction between principals and agents and has also established the legal framework for governing their operations. The Commercial Agency Law established the groundwork for a brand's presence in this market, whether in automobiles, pharmaceuticals, fast-food franchises, or any other retail area. And it meant that the local partner has sole rights to the brand and its management in the country.

These agreements of commercial agencies are recorded in the Ministry of Economy's commercial agents' registry. The Principal is obliged to choose an agent who will only work in a certain region or Emirate. They have the choice of hiring a single agent to handle their whole range of items across the UAE, or they may hire different agents.
This Law has defined the relationship between global brand owners and their representatives – or 'agents' – in the UAE throughout the years. These ties, in turn, have created significant income for brand owners and their local agents, allowing these companies to establish deep roots in the UAE marketplace. There have been disagreements in the relationship on and off, but they have always been resolved within the boundaries of the law. The Agency Law establishes the mechanism for foreign corporations or the principal to sell their products in the UAE. These Principals are required to select an agent that is either a UAE national or a corporation that is entirely controlled by UAE nationals as the Agent under Federal Law No.18 of 1981. But the recent amendments which are brought up by Federal Law No.11 of 2020 has effectively added two new UAE legal organisations that may qualify for registration as a commercial agent at the Ministry – thereby broadening the net.

Following the implementation of Federal Law No. 11 of 2020, the agent must now be: 
1. a UAE national;  
2. a UAE public joint stock company ('PJSC') held at least 51% by UAE nationals; 
3. a UAE private entity controlled by a PJSC satisfying the conditions of (2) above; 
4. a UAE private business owned 100% by UAE nationals

The Minister of Economy will, in due course, issue a resolution on the procedures and controls required for the engagement of a Public Joint Stock Company or private companies owned by a Public Joint Stock Company (meeting the national ownership criteria) in commercial agency activities in the UAE, but, in principle, local family businesses are now able to convert their private companies into Public Joint Stock Companies’ in order to seek foreign equity investment without the risk of losing their registered office (assuming, of course, that at least 51 per cent of the shares in the Public Joint Stock Companies are and continue to be held by UAE nationals).
Various Amendments have been brought in by Federal Law No.11 of 2020 but certain criteria are same as mentioned in the previous law. The additional registration criteria previously required for effecting registration at the Ministry have not changed under Federal Law No. 11 of 2020, namely that the relevant commercial agency agreement must be exclusive, either in respect of an Emirate or Emirates or the entire UAE, and that the commercial agency agreement must be notarized and accompanied by certain supporting documents.

Certain articles which came with major amendments in the Federal Law No.11 of 2020 are as follows- 

1. ARTICLE 1- Under this article, certain meanings of the words and expressions have been changed and added too. For example- Now the word “State” mentioned in this law will refer to The United Arab Emirates. Meaning of the word “Agent” has also updated to “A natural or legal person who, under a commercial agency arrangement, represents a principal.” Furthermore, there is now explicit reference to "franchise," which was not included in the previous definition of Commercial Agency, which is a significant advance.

2. ARTICLE 2- This article mentions about the major amendment in the law regarding commercial agencies, that is now all commercial agency operations in the state shall be confined to citizens, including people or firms who are wholly owned by a- 
a. national natural person; 
b. public legal person; 
c. private legal person owned by public legal people; 
d. private legal person entirely owned by national natural persons

3. ARTICLE 8- This revision now clarifies two specific aspects.
a. For starters, it is now specifically stated that a commercial agency shall pass to the heirs in the event of the agent's death. Previously, in the event of death, Article 14 of the UAE Commercial Agency Law required an agent's legal representative or heirs to submit an application along with supporting documents to remove the commercial agency from the register within 60 days of the death, or submit objections to avoid the agency's removal. Because Federal Law No. 11 of 2020 did not alter Article 14, the Ministry will need to clarify whether, in light of Article 14, the notice requirements are now required given the amendment to Article 8. 
b. Secondly, it is now explicitly stated that the expiration of a registered commercial agency does not constitute a "material basis" for terminating the registered commercial agency arrangement.
c. This reinforces the earlier interpretation of the original meaning of Article 8, namely that a new commercial agency could not be constituted for the same items even if the previous commercial agency was created under a fixed-term contract.

4. ARTICLE 28- The phrasing of Article 28 has altered somewhat, but the essence of the article has not. Essentially, any conflicts resulting from a licenced commercial agency must first be heard by the Commercial Agency Committee. Following notice of the Commercial Agency Committee's judgement, a party has 30 days to dispute the decision in local UAE courts. If no appeal is filed within this time period, the Committee's judgement is considered final and binding.

5. ARTICLE 30- The amendment to Article 30 has not changed the substance of the original wording except for the identity of the judicial officers charged with determining what falls within the scope of the UAE Commercial Agency Law and any violations thereof, and any violations thereof shall be by agreement between the Ministers of Justice and Economy, rather than solely the Minister of Economy.

6. ARTICLE 32- The changes to Article 32 are purely aesthetic, correcting inconsistencies in the usage of specified terminology in the original English version of the UAE Commercial Agency Law. Now the definition is mentioned as- “The Minister shall issue the regulations and resolutions necessary for implementing the provisions of this Law.”

By Arjav Sony

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