Commercial Agency

Minimizing risks by knowing about legal particularities

Should you strive for a cooperation with a commercial agent or distributor in the United Arab Emirates or should you already maintain business relations with local sales partners, it can be advisable to seek legal advice. We focus on the following aspects:

  • Advising on legal aspects of establishing new and restructuring existing distribution channels
  • Preparing and reviewing commercial agency and distribution agreements
  • Identifying possible entries in the commercial agency register
  • Assisting with the termination of commercial agencies and distributorships

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If a principal decides to engage with a commercial agent or distributor to market his products or services in the United Arab Emirates ("UAE"), he needs to consider the legal consequences of registering or not registering the commercial agency.

In case a registration of the commercial agency at the appropriate ministry is possible and will also be made, the UAE Commercial Agency Law becomes applicable. Since mid-June 2023, the legal basis has been Federal Law No. 3 of 2022. The UAE Commercial Agency Law is very advantageous for the commercial agent. Its provisions are mandatory and cannot be contracted out or bypassed.

A registered commercial agent, for example, enjoys exclusivity within his territory. In addition, the commercial agent is entitled to a commission for all products and services he is registered for and which are sold within his territory. He is even entitled to such commission should he not have been involved in the business transaction. Furthermore, the commercial agent is able to block the import of products at customs, at least as long as no litigation is pending, should there be a disagreement with the principal.

The commercial agent is protected and covered by the UAE Commercial Agency Law until the registration of his agency is formally deleted from the ministry's register.

The aforementioned protective regulations do not apply to unregistered commercial agencies.

In the past, the deletion of an agency from the ministry's register was not automatically be enforced even if a limited-term contract expired. In fact, a serious reason needed to be presented for not renewing a limited-term contract or for terminating an unlimited-term contract.

The new UAE Commercial Agency Law, however, is designed to be more flexible and provides, for example, for the possibility of a genuine limited-term contract so that upon expiry of the agreed term and observance of the rules on timely notification of non-renewal, the contractual relationship ends.

It remains to be seen whether the principal, by adhering to the agreed contractual provisions, will in fact be able to withdraw from a registered commercial agency in the future without having to pay a high compensation to the agent.

Due to the extensive protective rights of a registered commercial agent, it is essential to choose a representative carefully. Before his appointment, the principal should also consider whether he might want to execute the agency contract in such a way that it cannot be registered, provided compliance considerations allow to proceed as such.

In either case, local laws and regulations have to be kept in mind when drafting the contract to best justify terminating or not extending a contract in case of an agent’s wrongdoing. This applies all the more against the background of the new UAE Commercial Agency Law as it gives the parties greater freedom to contract.