The United Arab Emirates is ranked as 16th in the World Bank’s Doing Business Report 2020. It has scored 80.9 out of 100 for ease of doing business and has been the strongest performer in the Middle East and in North Africa. The UAE government, recognizing and believing that the modernization of legal systems goes hand in hand with economic advancement and social progress, has passed a new law on June 15th 2022 on commercial agencies.
The new law, which repeals a 40 year long legislation, increases the region’s attractiveness and competitiveness of the business environment in order to keep pace with future economic trends.
As under the old law, a commercial agency under the new law includes the agent acting on behalf of the principal for a commission including the distributor buying from the principal and selling on its own account in the territory. The new commercial agency law defines an agent to include (i) a natural person who is a UAE national, (ii) a private or public legal person such as a corporate entity and (iii) international companies in certain limited cases and only if allowed by the cabinet in the future.
Only those private companies owned by UAE nationals can be commercial agents. Most importantly, international companies subject to the Cabinet approval and further definition of requirements, can in future, become commercial agents of their own business provided they meet the following criteria which are (i) they do not already have a commercial agent in the UAE and (ii) they are new to the market and did not previously have a registered commercial agency in the market.
When it comes to terminating an agency contract, the new commercial agency law allows for two additional ways of terminating the agency contract which are either upon the expiration of the contract term provided it has not been renewed by the parties or upon unilateral termination by either party as per the conditions stipulated in the agency contract.
In cases of non-renewals of a limited term agency contract principals must pay attention to the notice periods provided for by the new commercial agency law. The party not wishing to renew the contract must notify the other party of the non-renewal one year before the expiration of the term or before the lapse of one half of the contract term whichever period is shorter unless the parties agree otherwise. In general, the agent will be entitled to claim compensation from the principal for the damages that occurred as a result of the expiration or termination. In case of an expiration at the end of the contract term, this compensation can contractually be excluded.
