The Ministry of Economy announced Wednesday that the amended draft federal law on regulating commercial agencies, which replaces the existing 40-year-old legislation, will come into force on June 16 this year.
As was announced by Minister of Economy Abdulla bin Touq Al Marri last year, authorities at the ministry confirmed that the business of commercial agencies would continue to be exclusive to UAE nationals only. The law also applies to commercial agency activities in all sectors without any exceptions, including the real estate sector, said ministry officials.
Moreover, the draft federal law on regulating commercial agencies now also allows public joint-stock companies, with at least 51 per cent national capital contribution, to act as commercial agents. “Any international company, under certain conditions and with the approval of the UAE Cabinet, will be allowed to act as a commercial agent for its products,” stated the law.
Abdulla Al Saleh, Under Secretary of Foreign Trade and Industry at the Ministry of Economy, introduced the Federal Decree Law No. (3) of 2022 during a press conference on January 25.
Only 6,000 commercial agencies have been registered in the country since the original law was drafted 40 years ago.
Strengthening UAE’s position as investment hub
Al Saleh said: “The law allows UAE nationals to participate in a wide range of agency operations. It strengthens UAE’s position as a favoured destination for leading regional and international investment.”
He added, “The new draft, which replaces the previous 40-year-old legislation, aims to accelerate the growth of commercial agencies in the nation by diversifying their activities, improving their economic performance, and increasing their contribution to the growth of the national GDP.”
In the case of non-renewal or termination for convenience, the termination provisions regarding the current agency contract will not imminently apply, except in these situations -- two years for existing agency contracts and 10 years for contracts that already exist with the same agent since they were registered or where the size of the agent’s investment exceeded Dh100 million.
Al Saleh said the significance of the decree stems from its provisions, which are based on the principle of autonomy/will and that the contract is indeed a pacta sunt servanda (agreements must be kept).
“This creates an environment favourable for investment and safeguards the rights of parties per their agreement,” he said, adding that the law would contribute to increasing national investments and FDI to the country. “The law will further offer guarantees and after-sale services as well as create new job opportunities in the country,” he said.
Here are some key provisions of the law:
• The business of commercial agencies will be exclusive to UAE nationals only, and the law will come into force on June 16 this year.
• Public joint-stock companies with at least 51 per cent of national capital contribution will be allowed to act as commercial agents.
• The law is based on the principle of autonomy/will, and the contract is pacta sunt servanda (agreements must be kept) protecting all parties.
• Any international company, under certain conditions and with the approval of the UAE Cabinet, will be allowed to act as a commercial agent for its products as long there was/ is no commercial agent.
• It introduces a new mechanism to settle disputes between the agent and client by resorting to arbitration upon agreement.
• The new law addresses the disruption of goods and services in the UAE markets in the case of a dispute between the two parties. It grants the Ministry of Economy the authority to specify exclusive resources vis-a-vis entering products and services for a short term with extended indemnities to the commercial to hold the principle accountable against any liability defined by the irrevocable court verdict.
• The termination provisions of the concurrent agency contract will not apply imminently regarding non-renewal or early termination for convenience. However, the law provides either two years or 10 years for existing agencies who have been with the same agent for more than 10 years or where the size of the agent’s investment exceeds Dh100 million.
• The law prohibits the practice of commercial agencies in the country unless registered in the commercial agency’s records in the Ministry of Economy. Any non-registered agency is not counted.
• A commercial agency committee will be formed as per the decision of the UAE Cabinet. The committee will specialise in resolving the dispute between the registered agency parties.
• The law creates additional opportunities and fields for family businesses owning commercial agencies and supports their transformation into public joint-stock companies.
• The law ensures that top products and commodities are offered to consumers, fulfilling their ambitions to access competitive prices and high-level services.
• As per the recommendation of the Minister of Economy and in coordination with the specialized entities, the law allows the Cabinet to release any activities or materials from the agencies following the specific regulations.
What is a commercial agency in the UAE?
Legal experts define a commercial agency in the UAE as an arrangement whereby an international company appoints an agent to distribute, offer, negotiate the sale or purchase of goods on its behalf within the UAE market for commission or profit.