The United Arab Emirates introduced Federal Law No. 3 of 2022 concerning the Regulation of Commercial Agencies on 15th June, ushering in several key changes that make it easier for foreign companies to do business in the country.
The new law replaces Federal Law No. 18 of 1981 and creates a more balanced relationship between commercial agents and foreign principals in the UAE. It broadens the definition of ‘commercial agent’ to include distributors, licensees and franchisees in addition to traditional agents. However, certain conditions must still be met, such as the agent conducting business in one of the categories required for commercial agency practice in the UAE.
Under the new law, the Cabinet can now approve international companies as commercial agents even if they are not owned by UAE nationals, provided the company does not already have an agent in the UAE and the agency is new. This is a significant step forward in enabling foreign companies to enter the UAE market without a local agent.
Commercial agencies in the UAE must still be granted exclusively, either for one or more of the seven emirates or nationally. Certain products and services, such as pharmaceuticals, also still require a registered commercial agent for import. While unregistered agents have no statutory right to exclusivity, this can be negotiated contractually.
Previously, there were limited grounds for terminating a registered commercial agency, but the new law provides more flexibility. Registered agreements can now be terminated by mutual consent, on 12 months’ notice by either party, upon expiry without renewal if 12 months’ notice is given, by court order, or as stipulated in the agreement. However, these new termination provisions will not apply to agencies registered before 15th June 2023 for two years. They will not apply at all to agencies registered for over 10 years or where the agent has invested over AED 100 million.
The new law also provides welcome changes to dispute resolution. While UAE courts retain jurisdiction, agreements can now specify alternative dispute resolution methods, including foreign arbitration, unlike under the previous law.
Conclusion
The new Commercial Agency Law provides a more fair and balanced legal framework for commercial agents and foreign companies in the UAE. However, existing arrangements should be reviewed to understand the implications of the changes. The UAE team at IMC Group has extensive experience advising on commercial agency and related matters in the UAE. Please get in touch for tailored guidance and support.
