The commercial agency is one of the most important tools regulating the relationship between producers and distributors within the UAE market. The legislator fully re-regulated it under Federal Decree-Law No. 3 of 2022 on the Regulation of Commercial Agencies, issued in December 2022 and effective six months after its publication, replacing Federal Law No. 18 of 1981 to keep pace with the modern business environment in the State. A commercial agency is the representation of the principal by an agent under a written and notarised contract in return for profit or commission, and this activity may not be practised within the State except by a person registered in the Commercial Agencies Register at the Ministry of Economy, as no unregistered agency is recognised. This guide covers three essential pillars needed by both the agent and the principal: the conditions and procedures of registration, the cases of termination of the contract and the controls for its termination, and the provisions of compensation and the mechanism for settling disputes before the Commercial Agencies Committee, the courts and arbitration.

What Is a Commercial Agency in the UAE and How Is It Registered, Terminated and Compensated?

Definition and Types of Commercial Agency

The law defined a commercial agency as the representation of the principal by an agent under a contract, within the State, in return for profit or commission. The principal is the producer or manufacturer that owns the goods or service, whether inside or outside the State, while the agent is the natural or legal person to whom the representation of the principal is established under the contract. This definition is broad enough to cover several forms of the commercial relationship according to the nature of the contract concluded between the parties, as follows:

Who May Practise Commercial Agency Activities?

The law tied the practice of commercial agency to the element of citizenship, restricting its practice within the State to UAE national individuals and companies and establishments wholly owned by nationals. This includes the national natural person, the public legal person, and the private legal person wholly owned by national natural persons. Thus the capacity of commercial agent remains confined to those meeting these conditions, protecting the national character of this activity.

Exception for International and Public Joint-Stock Companies

The law permitted the Cabinet, upon the recommendation of the Minister of Economy, to allow international companies to practise commercial agency for their own products even if not owned by nationals, within the conditions and limits it determines, provided the agency has no commercial agent inside the State and is new and not previously licensed. The law also exempted public joint-stock companies in which the participation of UAE nationals is not less than 51% of the capital, with the Cabinet issuing a resolution on the procedures, controls and conditions required for their practice of this activity.

Conditions for Validity of the Agency and Mandatory Registration

The validity of a commercial agency requires two concurrent conditions: that the agent be bound to the original principal by a written and notarised contract, and that the agency be registered in the Commercial Agencies Register. Registration is not a formality but a condition for the existence and enforceability of the agency; the activity may not be practised except by a person registered with the Ministry, and no unregistered agency is recognised. The commercial agency contract is deemed to be for the joint interest of the contracting parties, the provisions of the law apply to it, no agreement contrary to them is recognised, and the State's courts have jurisdiction over disputes arising from the contract. The law also regulated the contract term, the multiplicity of agents and the entitlement to commission as follows:

Procedures for Registering the Agency in the Ministry's Register

An application for registration in the Commercial Agencies Register is submitted to the Ministry of Economy, and the Minister's decision determines the data required in the application. The application must be accompanied by the supporting documents, in particular a copy of the valid trade licence and a copy of the commercial agency contract notarised and authenticated by the official authorities. The Ministry examines the application and issues its decision within ten working days from completing the registration requirements, and upon approval it issues the approved certificate and notifies the competent authority and the relevant entities. Any interested party may obtain from the Ministry an extract from the registration sheet or a certificate of non-registration.

Rejection of the Application and Appeal Against It

Upon rejecting the application, the Ministry must state the grounds it relied on and notify the concerned party of the rejection by registered letter, in person, or by email. Failure to reply within ten working days from submitting the completed application is deemed a rejection. A person whose application is rejected may appeal before the competent court within sixty days from notification of the rejection or knowledge thereof, or from the day following the expiry of the prescribed ten-day period.

Amendment, Change and Cancellation of the Registration

The law obliged the agent, or whoever legally represents it, or its heirs upon its death, to apply to the Ministry to record any change or amendment affecting the agency in the register within sixty days from knowledge thereof, and the Ministry notifies the customs authorities and the competent authority. As for cancellation, the agent must apply to cancel the agency registration if a legal condition ceases to apply or if the agency ends and is not renewed, within a maximum of sixty days from the date the cause arises. The Ministry may cancel the registration on its own initiative once it verifies the cessation of a condition, ten working days after notifying the concerned parties, and notifies the relevant federal and local entities. The application for amendment or cancellation must be accompanied by the supporting documents, and the Ministry may request any necessary documents.

Agents' Obligations and Prohibitions on Parallel Importation

The law imposed on the agent obligations protecting the consumer and the continuity of service, requiring it to provide spare parts, the necessary tools, materials and equipment and sufficient labour to maintain durable goods, and to provide the maintenance services subject of the agency in accordance with the parties' agreement. In return, the law prohibited the parallel importation of goods subject of a registered agency for the purpose of trading otherwise than through the agent.

Customs Seizure on Parallel Importation

It is prohibited to import goods, products or materials subject of a registered commercial agency for the purpose of trading otherwise than through the agent. Customs departments may not release such imports except with the approval of the Ministry or the agent, while notifying the Ministry or the agent as the case may be. Upon the agent's request through the Ministry, the customs departments seize such imports until the dispute is settled, and the Ministry may, by its decision, lift the seizure and allow the goods in temporarily.

Cases of Termination of the Commercial Agency Contract

The law exhaustively specified the cases in which the commercial agency contract ends, achieving a balance between the parties and preventing arbitrary termination. These cases are:

Devolution of the Agent's Assets and Entry of Goods During the Dispute

The law addressed the fate of the agent's assets upon termination, providing that when any termination case occurs, and unless the parties agree otherwise, the former agent's assets devolve to the principal or the new agent at fair value. This requires that the assets be goods, merchandise, materials, spare parts and machinery linked to the agency contract and agreed upon therein, in the former agent's possession at the time of termination, with no restriction on the transfer of their ownership. Either party may, for the purpose of assessing the value of these assets, file a lawsuit to compel the other party to pay their value before the court within whose jurisdiction the main centre of the agency is located.

Entry of Goods and Services During the Dispute Period

The law permitted, with the Ministry's approval and during the dispute period and for a temporary period, the entry of goods or services into the State from exclusive sources, provided the principal remains liable throughout that period towards the former agent for any compensation finally awarded by the competent courts. The Ministry shall, by ministerial decision, regulate the conditions and provisions of such entry so as to control the flow of goods and services during the dispute period.

Controls on Early Termination and Non-Renewal

The law laid down precise controls governing early termination, obliging the party wishing to terminate to send a notice to the other party of its intention, the notice period being not less than one year before the date set for termination, or before the expiry of half the contract term, whichever is shorter, unless otherwise agreed. Either party may submit a detailed report prepared by a specialised professional entity on the settlement of dues and guarantees of non-interruption of after-sales services. The party that does not accept the termination may resort to the Commercial Agencies Committee to challenge it, and the Committee decides the challenge within one hundred and twenty days from registration; expiry of the period without a decision is deemed a rejection of the challenge. The contract remains in force until the expiry of the notice period or settlement of the dispute, whichever is later. As for non-renewal, the party wishing not to renew must send a notice one year before the expiry of the term, or before half of it, whichever is shorter.

Compensation Upon Termination of the Agency

The law guaranteed the right to claim compensation in two main cases. First: if the contract ends upon expiry of its term without renewal, then without prejudice to the provisions on devolution of assets and unless there is an express agreement to the contrary, the agent may claim from the principal compensation for the harm it suffered from the termination. Second: if termination by the will of one party causes harm to either of them, the harmed party may claim compensation for the harm sustained.

When Is the Agent Entitled to Compensation for Lost Profit?

The agent is entitled to compensation if it proves that its activity led to evident success in promoting the principal's products, to an increase in their volume and in the number of customers, and that termination of the agency in respect of that success deprived it of the profit it would have earned. Thus the law links entitlement to compensation to the agent proving its actual impact in building the market.

Dispute Settlement: the Committee and Arbitration

The law established a committee called the «Commercial Agencies Committee», whose formation, working system and dispute-hearing fees are issued by a Cabinet resolution, and made referral to it a condition for accepting a lawsuit before the courts. The Committee is competent to consider disputes arising between the parties of an agency registered with the Ministry, and must begin examining the dispute within twenty-two working days of submitting a complete application and decide it within one hundred and twenty days of submission, with either party able to resort to the courts within sixty days of the expiry of this period. The Committee's decision has the force of an enforceable instrument if it is not appealed and the dispute is brought before the courts within sixty days of notification.

Resort to Arbitration and Engagement of Experts

The provisions of the law do not prejudice any agreement between the agent and the principal to refer the dispute to arbitration, and the arbitration is within the State unless otherwise agreed. Once one party resorts to arbitration after the Committee's decision and within the appeal period, the Committee's decision in this respect produces no effect. The Committee may also engage experts and specialised entities in accordance with its working system.

Transitional Provisions for Existing Contracts

The law took into account the status of contracts existing at the time of its issuance to protect settled investments, providing that the provisions on termination upon expiry of the term or by the will of one party do not apply to agency contracts in force at the time of issuance except after two years from its entry into force. This period is extended to ten years for agencies whose licensing to the same agent has exceeded ten years, or in which the agent's investments have exceeded one hundred million dirhams, with these investments assessed in accordance with the standards issued by the Minister of Economy.

Key Legal Periods and Deadlines

Practical Legal Tips for the Agent and Principal

Based on the provisions of the Commercial Agencies Regulation Law, the following are practical guidelines that protect the rights of both parties and reduce the likelihood of disputes:

Legal References

Frequently Asked Questions

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