New legislation was recently published in relation to the UAE’s commercial agency laws and is due to take effect on 15 June 2023. The key provisions of UAE Federal Law No. 33 of 2022 (the New Commercial Agencies Law) include:
Identity of agent. Currently, only UAE persons or entities that are owned 100% by UAE nationals may act as commercial agents in the UAE. The New Commercial Agencies Law will allow public joint stock companies that are owned up to 49% by non-UAE nationals to carry out commercial agency activities in the UAE. The New Commercial Agencies Law will also allow principals (including foreign principals) to act as commercial agents in the UAE where the principal intends to distribute their own products (rather than a third-party’s products). This rights only applies if the principal has not previously appointed a commercial agent in the UAE. This is particularly relevant for foreign entities who are new entrants to the UAE and wish to carry out the distribution of their products without appointing a UAE person as their agent/distributor.
Exclusivity. As per the existing law, each commercial agency contract needs to provide the commercial agent with exclusivity. Such exclusivity can be country-wide (i.e. whole of the UAE) or specific to one or more Emirate.
Contract duration. The New Commercial Agencies Law stipulates that, where the commercial agency contract requires the agent to establish showrooms or buildings, stores or maintenance or repair facilities, the contract term must be for a minimum of five years, unless otherwise agreed. It is not clear at present if such minimum term may be waived by mutual agreement of the parties.
Entitlement to commission. As per the existing law, the New Commercial Agencies Law provides that the agent is entitled to commission for any sale of the relevant products concluded in the territory, as specified in the relevant agency contract. This rule applies irrespective of whether the sale is concluded by the agent, the principal or some other third party.
Expiry and termination. In contrast to the current agency laws, the New Commercial Agencies Law allows commercial agency contracts to expire at the end of their term without requiring the principal to renew such contracts. The principal can also terminate the agency agreement at will. In each case, the principal is required to give the agent sufficient prior notice of its decision not to renew or terminate the agency agreement. The required notice period will be the lesser of: (a) half of the term of the contract; and (b) one year prior to the expiry of the contract.
Disputes. As per the existing law, the New Commercial Agencies Law requires parties to refer any disputes to the Commercial Agencies Committee. However, the new law allows the parties to refer any such dispute to arbitration if they are not satisfied with the Committee’s decision.
Parallel import and sale of products. The New Commercial Agencies Law stipulates that where there is an ongoing dispute between a principal and agent, the principal may continue to import and sell its products in the relevant region through a third party on a temporary basis, provided however, that the principal remains liable throughout said period for compensation that may be awarded following determination of the dispute.
Applicability. The New Commercial Agencies Law will not apply to commercial agency contracts that are already in force at the time the new law takes effect until:
ten years following the date on which the new law comes into effect – with respect to commercial agency contracts that have been registered under the same agent for a period of more than ten years and where the agent’s investment is more than AED100,000,000 (the level of investment to be determined by the Ministry of Economy); and
two years following the date on which the new law comes into effect – with respect all other commercial agency contracts.
Note that the New Commercial Agencies Law only applies to local agents who meet the criteria under the law, have exclusivity rights in one or more Emirate and have a notarised commercial agency contract with the principal that is registered with the Ministry of Economy – Commercial Agencies Committee.
To the extent the above criteria is not satisfied, local agents and principals can still enter into commercial agency contracts. However, such contracts will not be subject to the rules and protections afforded by the New Commercial Agencies Law. Accordingly, any protections and/or arrangements between the principal and the agent will need to be expressly stipulated in the underlying contract.
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This material is provided for general information only. It should not be relied upon for the provision of or as a substitute for legal or other professional advice.
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