UAE's new commercial agencies law expected to improve business competitiveness

Legislation aims to strike a balance between principals and agents in commercial partnerships, Economy Minister Abdulla bin Touq says

Minister of Economy Abdulla bin Touq said the new law provides a more welcoming environment for businesses to flourish. Pawan Singh / The National

The newly introduced commercial agencies law, which came into effect in June, reflects the UAE’s commitment to foster a business-friendly environment, both for domestic and foreign investment, and double gross domestic product by 2031, the Minister of Economy has said.

“The impact of these changes on our economy will be undeniable,” Abdulla bin Touq said at an event organised by law firm Al Tamimi & Company in Dubai on Monday.

“We anticipate increased investor confidence, greater economic diversification and a more welcoming environment for businesses to flourish.

“The updated provisions will bring about a major shift to existing alliances. The law provides all parties involved with ample time to adjust.”

The Federal Decree Law No. (3) of 2022 on regulating commercial agencies replaces the original law that was drafted 40 years ago.

The Arab world's second-biggest economy has introduced an array of reforms aimed at improving the ease of doing business, attracting foreign investors, creating jobs and diversifying its economy away from oil.

The UAE has allowed 100 per cent foreign ownership of companies, reduced visa restrictions, provided various incentives for small and medium enterprises and introduced laws to improve transparency for investors.

The country is also putting in place various measures to boost foreign direct investment. It aims to attract Dh550 billion ($149.7 billion) in FDI by 2030, and eventually reach Dh1 trillion by 2051.

The new commercial agencies law expanded the type of companies that can act as a registered commercial agent.

Only Emiratis and companies fully owned by them can act as commercial agents, Mr bin Touq said.

“This has opened the door for more citizens to be increasingly involved in commercial agency arrangements,” he said.

“On the other hand, the new law also grants the right for international companies to act as agents for selling their own products under certain conditions.”

Additionally, public joint-stock companies with at least 51 per cent of national capital contribution will be allowed to act as commercial agents.

The business landscape is evolving and it is up to policymakers to ensure that the UAE’s legal framework remains dynamic, conducive to growth and potentially encouraging FDI, Mr bin Touq said.

The UAE recognises commercial agencies as an integral part of its business landscape, he said.

The new legislation “reflects our commitment to fostering the business environment, while keeping in mind the principles of efficiency, predictability, transparency, fairness and accountability”.

“The legislation aims to strike a balance between principals and agents in commercial partnerships,” said Mr bin Touq.

“International businesses looking to expand in the UAE often work with local commercial agents to benefit from their knowledge and established presence. We wanted to preserve this relationship.”

To increase market efficiency, it is now possible for parties to resolve commercial agency disputes through arbitration, making the UAE’s legal framework more flexible, said Mr bin Touq.

“With regards to contractual terms, the new legislation expands the legal grounds for dissolving registered commercial agencies. Principals have greater termination rights now,” he said.

Mr bin Touq advised companies to pay close attention when drafting clear, unequivocal terms in commercial agency contracts.

Meanwhile, Essam Al Tamimi, chairman of Al Tamimi & Company, said during a panel discussion that the new law balanced the rights of principals and commercial agents.

Ayesha Al Mulla, member of the Federal National Council, Parliamentary Assembly of the Mediterranean ambassador for Cop28 and first vice-chairman of Mas Capital, said the Emirates needs a law that will preserve the obligations of all stakeholders, including the consumer.

Hasan Al Kilany, senior legal counsel in the Ministry of Economy, said principals used to resort to different commercial arrangements rather than agency contracts.

“The new law allows for a smooth exit under explicit articles in the law. This is not open to interpretation by the judiciary,” Mr Al Kilany said.

“Also, assets are transferable between parties with mutual consent as long as there are no restrictions, such as a mortgage. Either party can use one of the Big Four companies to evaluate assets.”

Disputes can now be approached with different alternatives, with arbitration open between parties, he said.

Under the previous law, an agency or principal could not amend a contract without proving “material breaches” to the court or the Commercial Agencies Committee, said El-Ameir Noor, partner of dispute resolution at Al Tamimi & Company.

Unfortunately, material breaches are not identified by the law and were open to legal interpretation, Mr Noor said, adding that the issue had now been addressed.

Under the new law, both parties can exit the relationship without going through material breaches, he said.

“The provision of arbitration is also favourable to many international companies. You can choose your arbitrator. Time for arbitration might be less than court proceedings, which might sometimes last between three to five years, depending on the dispute,” Mr Noor said.

Kassem Younes, senior managing director at global advisory firm Ankura, said under the previous law, there was no consistency on how each expert approached compensation claims.

The guidelines were left to legal interpretation, often ignoring the historical investment made by the agent, he said. The lack of clarity made compensation range from small amounts to huge sums that defied logic.

The new law brings clarity to this, Mr Younes said.

“At the end of a relationship, the assets held by the agent must be transferred at a fair value. Even at the expiry of an agreement, the party has the right to compensation,” he said.

“For early termination, the law states that the agent has the right to claim compensation for loss of profit, but they must prove that they have brought valuable profit to the principal.”

From a principal’s perspective, the new law helps to manage risk and offers clarity on exposure, while from an agency’s point of view, they are offered assurances on not making losses on their investment, Mr Younes said.