Penalties of up to Dh400,000 for breaking UAE Commercial Agency Law
UAE Ministry of Economy outlines guidelines to breaches in agent-local partner ties
Dubai: The UAE Ministry of Economy is bringing stringent penalties for companies found to be in violation of the updated Commercial Agency Law.
For instance, if an international business sells its goods and services to entities or individuals other than the contracted commercial agent, they may face fines ranging Dh100,000 to Dh400,000, after an initial warning.
Additionally, their goods may be seized by UAE Customs, Hasan AlKilany, Senior Legal Counsel at the UAE Ministry of Economy, said on Monday.
AlKilany said this represents a significant change from the previous law, where complaints were taken to civil courts for resolution. Under the new law, a disciplinary cabinet resolution allows for penalties at two levels: A warning for the first offense, followed by fines of Dh100,000 and Dh200,000, along with Customs' seizure of goods. The fines could reach as high as Dh400,000 for repeat violations.
This approach sends a clear message to the international community that any breaches of contractual obligations will be treated as wrongdoing. For example, bypassing geographical limitations to operate in a different emirate, whether by a third-party or the agent themselves, will also be considered a violation.
We've reached a point where businesses can efficiently conduct their operations in the UAE, enabling them to launch quickly. The process of setting up mainland entities has also become smoother.
The updated UAE Commercial Agency Law provides scenarios where the business owner can retail full ownership of his enterprise in the UAE - and those sectors where they will need to operate through a local 'agent'.
"We are sending a strong message internationally - no one can evade their contractual obligations," said AlKilany. "Violators will face penalties and have a criminal record."
In conjunction with the Cabinet resolution, the official publication in the Official Gazette is expected soon, according to AlKilany.
The UAE Ministry of Economy also confirmed that existing commercial agency contracts - drafted before the new Commercial Agency Law took effect in June - will automatically be governed by the provisions of the new law.
AlKilany said that the new law applies to all new contracts, with the exception of two scenarios: non-renewal and early termination of contracts for convenience.
"In all other cases, the new law will apply to existing agency agreements," AlKilany stated, adding that there is no transitional period required.
As long as the agency is functioning effectively and successfully, parties are unlikely to consider terminating the arrangement, and existing contracts will simply fall under the purview of the new law.
Prominent provisions of the law
• Public shareholding companies with at least 51 per cent UAE citizen ownership can engage in commercial agency operations. At the same time, other legal entities are restricted to UAE citizens only, promoting family-owned companies' transition into public shareholding firms.
• Commercial agency contracts are typically set at five years when involving buildings, warehouses, or maintenance facilities unless stated otherwise in the agreement.
• Only registered entities in the Commercial Agencies Register at the Ministry of Economy can engage in commercial agency activities.
• The law establishes procedures for contract termination, including notice periods and asset transfer conditions to new agents.
• Measures are in place to ensure the continuous flow of goods and services during disputes between principals and agents, with principals held responsible for compensation.