UAE changes commercial agency law to encourage more foreign investment

The new law, which will take effect from 15 June, allows companies more control over how long registered agency agreements will last and when an agency agreement can be terminated. Under the current law, termination of a registered agency agreement is considered to be difficult and attempts can often result in compensation for loss and damages being awarded to the local agent.

“This is a shift from the current approach which requires there to be a ‘material’ reason for non-renewal of an agency agreement,” said Mohammad Tbaishat of Pinsent Masons. “The new law is a positive development in encouraging foreign investment and international businesses to continue to move to and operate in the UAE.”

The law will apply to new registered commercial agency arrangements from 15 June. The law will not apply to existing agency contracts until two years after that. For contracts that are 10 years old or even older the new rules on termination will apply 10 years after the law has come into force. The same is true for relationships where the agency has invested more than Dh100 million (US$27m).

International businesses looking to grow and expand in the UAE market often work with commercial agents to benefit from their local knowledge and their distribution network.

Acting as a commercial agency is generally exclusive to UAE citizens under the new law, but with an exception for public joint-stock companies with 51% or more of national capital contribution, which will also be able to act as commercial agents. Beyond that, the new law provides for the UAE cabinet to allow international companies to act as agents for their own products, but only in cases where the products have not previously had an agent.

The new law also contains a new settlement mechanism for disputes between companies and their agencies. As with the current law, before a dispute between a company and its commercial agent can be admitted to court it must first be presented to the commercial agency committee. Under the new law, disputing parties will also be able to arbitrate any disputes, provided all parties agree on this.

“This additional flexibility to dispute resolution is a welcome change that we anticipate will give foreign principals some additional comfort around the ability to resolve disputes with their distributors and agents”, said Mohammad Tbaishat.

According to a spokesperson for the ministry, the new law will “promote the flexibility of the national economy and enhance its international competitiveness, as well as consolidating the position as a favoured destination for top regional and international companies and trademarks.”