A Comprehensive Overview of the UAE Commercial Agency System

n the past, foreign enterprises entering the UAE market typically needed to rely on local partners to conduct business, with common models including distribution arrangements and franchising. Under such cooperative structures, because the UAE's commercial agency and distribution regime affords relatively strong legal protection to local agents or distributors, foreign enterprises have faced comparatively limited flexibility in channel management, commercial arrangements, and adjustments to cooperative relationships.

The legal framework centered on Federal Law No. 18 of 1981 on Commercial Agencies (hereinafter the "1981 Commercial Agencies Law") served for a long period as the primary legal basis governing commercial agency relationships and imposed a relatively strict regulatory framework on agency registration, ongoing cooperation, and termination mechanisms. As the UAE has continued to advance improvements to its investment environment and reforms to its market mechanisms, the need to adjust and update the existing system has gradually become apparent.

Against this backdrop, the UAE promulgated Federal Law No. 3 of 2022 Regulating Commercial Agencies (hereinafter the "2022 Commercial Agencies Law"), undertaking a systematic restructuring of the legal framework governing commercial agencies. This law was published in the UAE Official Gazette on December 15, 2022, and formally came into effect on June 15, 2023, superseding the 1981 Commercial Agencies Law upon its implementation.

The implementation of the 2022 Commercial Agencies Law marks a new stage of development for the UAE's commercial agency system. The discussion below will focus on the basic framework of the commercial agency system and the principal content of this reform.

I. Overview of the Commercial Agency System

A commercial agency refers to the legal relationship whereby an agent, pursuant to an agency, distribution, sales, promotion, or franchise contract, undertakes on behalf of a principal the sale, promotion, or supply of goods, or the provision of services, within the territory of the UAE, in exchange for commission or profit. This legal relationship is based on a grant of authority and typically exhibits characteristics of continuity, commerciality, exclusivity, and territoriality.

A commercial agent refers to a natural or legal person who, under a commercial agency contract, accepts appointment to carry out commercial agency activities on behalf of a principal. The 1981 Commercial Agencies Law imposed strict restrictions on the eligibility of commercial agents, providing that entities engaged in commercial agency business within the UAE were limited to individual UAE nationals, as well as companies or entities wholly owned by UAE nationals, public juridical persons, or qualifying local juridical persons; in principle, foreign enterprises were not permitted to act directly as commercial agents. The 2022 Commercial Agencies Law, by contrast, moderately relaxed these eligibility restrictions, permitting qualifying multinational companies to engage in commercial agency business where specific conditions are met, thereby further expanding the scope of eligible commercial agents.

The commercial agency system is not merely a commercial arrangement, but also an important institutional mechanism through which the UAE promotes the development of local commerce, maintains market order, and protects consumer rights. On this basis, the 1981 Commercial Agencies Law imposed strict restrictions on the eligibility of commercial agents and afforded them relatively strong statutory protections. The 2022 legislative reform, while preserving the overall institutional framework, further advanced market openness and the optimization of the business environment.

II. The Legislative Logic of the Commercial Agency System

Understanding the commercial agency system first requires an understanding of its legislative background. In the early 1980s, the UAE had only recently been established as a nation, and although its economy was in a phase of rapid development, its modern commercial system remained at a nascent stage. Large numbers of international brands sought to enter the local market but commonly faced practical challenges such as underdeveloped sales channels, weak warehousing and logistics infrastructure, and the absence of after-sales service networks. At the same time, the UAE at that stage imposed relatively strict restrictions on foreign investment access, making it costly and difficult for foreign enterprises to establish sales and service networks directly. As a result, partnering with local enterprises became the predominant model through which international brands entered the UAE market.

Under this cooperative model, local enterprises were typically responsible for localized operations such as the importation of goods, warehousing and logistics, channel development, marketing and promotion, after-sales repair, and technical services, and committed substantial capital and resources to these functions. Foreign enterprises, for their part, were responsible for providing products, technical support, and brand licensing. In order to safeguard the long-term investment of local enterprises and promote the development of the market system, Federal Law No. 18 of 1981 on Commercial Agencies came into being. By granting registered commercial agents relatively strong legal protection, this law encouraged local enterprises to continue investing and to improve the market service system and played an important role in the development of the UAE's commercial infrastructure and market throughout that period.

As the UAE's economy has continued to open and its investment environment has continued to improve, the traditional commercial agency system has gradually become less able to meet new market demands. In order to further attract foreign direct investment, promote the expansion of investment by domestic enterprises, and encourage UAE nationals to participate in new enterprises and new investment projects in the capacity of commercial agents, Federal Law No. 3 of 2022 Regulating Commercial Agencies while preserving the basic framework of the commercial agency system has systematically adjusted a number of core rules, so as to better balance the dual objectives of market openness and the development of local commerce.

III. Key Points of the 2022 Commercial Agencies Law

Federal Law No. 3 of 2022 Regulating Commercial Agencies, while continuing the basic framework of the commercial agency system, refines and adjusts a number of core institutional rules, focusing primarily on the eligibility of commercial agents, contract terms, termination of agency relationships, dispute resolution, and transitional arrangements, thereby further balancing the protection of local agents' rights and interests against the objectives of market openness and business environment optimization.

(1) Permitting Qualifying Multinational Companies to Engage in Commercial Agency Business

Article 2(2) of the 2022 Commercial Agencies Law establishes an access mechanism enabling multinational companies to engage in commercial agency business within the UAE. The Cabinet may, upon the recommendation of the Minister, permit a multinational company (including an enterprise not wholly owned by UAE nationals) to engage in commercial agency business for its own products or services, provided that the following two strict conditions are simultaneously satisfied:

1.No registered agent already exists in the UAE for the relevant product or service; and

2.The agency business in question is new and has never previously been registered in the UAE.

(2) Specifying a Minimum Term for Long-Term Commercial Agency Contracts

With respect to the term of commercial agency, the 2022 Commercial Agencies Law does not impose a uniform mandatory requirement governing the contractual term of commercial agency relationships in general; in principle, it respects the autonomy of the parties, leaving the term to be agreed upon by the parties themselves in accordance with their commercial arrangements. However, Article 6 of the Law provides that, for commercial agency arrangements under which the agent is required to invest in the construction of infrastructure such as warehousing facilities, maintenance centres, after-sales service centers, or product showrooms, the agency term should in principle be no less than five years. Such commercial agencies are generally structured with consideration given to the investment payback period and commercial stability, and the law tends, at the legislative level, to provide a degree of durational stability for such agency relationships. This term requirement, however, is not absolute or mandatory; the parties may still agree otherwise on the agency term based on their specific business model and cooperation needs.

(3) Key Considerations in Executing Commercial Agency Contracts

Articles 3 and 4 of the 2022 Commercial Agencies Law provide that commercial agencies in the UAE must be registered in accordance with law and executed in written form as a condition of validity; a commercial agency that has not been registered with the Ministry of Economy shall have no legal effect. Specifically:

The commercial agency and the agency agreement must be registered with the Commercial Agencies Register maintained by the Ministry of Economy. The activities of the commercial agency must be carried out by the person(s) registered with the Commercial Agencies Register.

An agency agreement is deemed valid only where it is made in writing and duly notarized.

A commercial agency contract should serve the common interests of both contracting parties and must comply with the provisions of the new Commercial Agencies Law; any agreement that contravenes the provisions of the law shall be null and void.

(4) Retention of the Preliminary Adjudication Mechanism of the Commercial Agencies Committee

Article 8 of the 2022 Commercial Agencies Law expressly retains the authority of the UAE's Commercial Agencies Committee. This Committee is responsible for hearing disputes between registered commercial agents and principals, and its rulings may be appealed to the UAE courts in accordance with law. Article 24 of the 2022 Commercial Agencies Law further provides that proceedings before the Commercial Agencies Committee constitute a mandatory preliminary procedure that the parties must complete before initiating dispute resolution proceedings before the courts and thus form a necessary prerequisite to recourse to the courts.

(5) Greater Flexibility in the Termination Mechanism for Commercial Agency Relationships

Compared with the 1981 Commercial Agencies Law, Article 9(1) of the 2022 Commercial Agencies Law further relaxes the conditions under which a commercial agency relationship may be terminated, expressly providing that a commercial agency relationship may be terminated under the following circumstances:

• Upon expiry of the term of the commercial agency agreement, where the parties have not renewed it;
• Where either party exercises a right of termination in accordance with the terms of the contract;
• Where the parties terminate the agreement by mutual agreement prior to the expiry of its term;
• Where a court issues an effective, final and binding judgment terminating the agency relationship; or
• Any other circumstances of termination as prescribed by law.

(6) Continued Retention of Exclusive Operating Protection for Registered Commercial Agents

Article 20 of the 2022 Commercial Agencies Law reaffirms that, in order to safeguard the exclusive operating rights of agents, the relevant products and goods covered under a commercial agency contract should, in principle, be imported into and enter the UAE market through the registered commercial agent; goods imported without the involvement of the commercial agent may not be cleared through customs, unless the consent of the Ministry of Economy or of the commercial agent is obtained. At the same time, customs authorities and the relevant Ministry of Economy may, upon application by the commercial agent, detain and hold the relevant goods in safekeeping pending resolution of the dispute, and may, based on written justification, decide to permit the relevant goods or services to enter the market on a temporary basis.

(7) Authorization of the Cabinet to Determine the Scope of Products Excluded from Commercial Agency Registration

Article 21 of the 2022 Commercial Agencies Law provides that the UAE Cabinet, in coordination with the Ministry of Economy and upon the recommendation of the Minister, has the authority to decide to exclude specific activities or products from the scope of application of the commercial agency system, and to specify the scope and effective date of such exclusion by way of a Cabinet resolution. Once particular activities or products are excluded from the application of the commercial agency system, the Ministry of Economy shall correspondingly remove them from the Commercial Agencies Register, such that they no longer benefit from the protection of the Commercial Agencies Law. Article 22 of the 2022 Commercial Agencies Law further provides that, with respect to violations of the Law, the Cabinet shall establish uniform rules governing violations and administrative penalties and shall impose administrative penalties on the relevant parties in accordance with law.

(8) Permitting the Resolution of Commercial Agency Disputes through Arbitration

Article 26 of the 2022 Commercial Agencies Law provides that the parties may agree that disputes arising under a registered commercial agency contract be resolved through arbitration within the territory of the UAE, unless otherwise agreed by the parties. Where the agent or the principal initiates arbitration in respect of a dispute during the period for raising objections prescribed under Article 24 of this Law, following a decision rendered by the Commercial Agencies Committee, that decision of the Committee shall be of no force or effect and shall produce no legal consequences. In addition, the arbitration mechanism shall not apply to commercial agency disputes that were already pending before the Committee or the competent court prior to the publication of this Law in the Official Gazette.

It should be noted, however, that pursuant to Article 5, a commercial agency contract must be based on the common interests of both parties, and all provisions of this Law are of mandatory application; any agreement that conflicts with the provisions of this Law shall be null and void, and the UAE national courts shall retain jurisdiction over commercial agency disputes. Accordingly, even where a contract provides for the application of foreign law or for the resolution of disputes through arbitration, substantive matters concerning the commercial agency relationship must nonetheless remain subject to this Law.

(9) Transitional Protection Period for Existing Commercial Agency Contracts

Article 30 of the 2022 Commercial Agencies Law constitutes an important exception provision. With respect to existing commercial agency contracts that were already in effect at the time the 2022 Commercial Agencies Law was promulgated, the provisions of the 2022 Commercial Agencies Law concerning termination upon contract expiry and unilateral termination shall have no retroactive effect and shall not immediately bind such pre-existing contracts. Specifically:

For ordinary commercial agency contracts, a two-year transitional period shall apply, commencing from the date on which the 2022 Commercial Agencies Law takes effect;

For commercial agencies that, as of the date of publication of the 2022 Commercial Agencies Law, had been continuously registered for more than ten years, or in respect of which the agent had made cumulative investments in the UAE exceeding AED 100 million, the above-mentioned transitional period shall be further extended to ten years.

This transitional arrangement is intended to fully protect the vested investment interests and legitimate commercial expectations of long-term cooperating agents, to provide market participants with an adequate period for adaptation and adjustment, and at the same time to ensure the smooth advancement of legal reform, thereby achieving an organic balance between institutional innovation under the 2022 Commercial Agencies Law and the stability of market order.

IV. Commercial Agency Risk Considerations for Chinese Enterprises Entering the UAE Market

In recent years, as the UAE has continued to improve its business environment and has amended the Commercial Agencies Law, the pathways available to foreign enterprises entering the UAE market have become more diverse, and the flexibility of market access has correspondingly increased. Nevertheless, Chinese enterprises planning to enter the UAE market should, when determining their mode of market entry, selecting business partners, executing agency agreements, and conducting subsequent business operations, still fully identify and guard against relevant legal risks, so as to ensure that their commercial arrangements comply with the UAE's current laws and regulatory requirements.

First, Chinese enterprises should prudently select a market entry model based on their own business characteristics, product attributes, and commercial objectives, comprehensively assessing the legal implications and commercial costs of different models such as commercial agency, distribution, and franchising. In practice, the legal nature of a cooperation agreement is not determined solely by the title of the contract but rather is assessed comprehensively by reference to the parties' actual performance, the manner of authorization, the content of the cooperation, and the transaction arrangements. Accordingly, even where an agreement is titled a "Distribution Agreement" or "Cooperation Agreement," it may nonetheless, where it exhibits the relevant legal characteristics, be characterized as a commercial agency relationship and thereby become subject to the relevant provisions of the Commercial Agencies Law. In structuring transactions, Chinese enterprises should consider core matters such as the scope of the agency, exclusivity arrangements, sales territory, price control, control over customer resources, and the respective rights and obligations of the parties, so as to avoid unintended legal consequences arising from improperly designed transaction structures.

At the same time, as an important legal instrument governing the parties' cooperation, a commercial agency agreement should clearly stipulate matters such as the agency products, agency territory, scope of authority, contract term, renewal mechanism, commission rate, liability for breach, contract termination, and dispute resolution, and should, in light of business development needs, establish reasonable performance evaluation and exit mechanisms. In particular, with respect to termination of cooperation, the parties should agree in advance on matters such as the conditions for termination, notice periods, disposal of inventory, handover of customers, cessation of use of intellectual property, and return of business materials, so as to reduce the legal risks and commercial losses that may arise in the course of terminating the cooperative relationship.

In addition, before selecting a business partner, Chinese enterprises should conduct thorough legal and commercial due diligence, comprehensively verifying the partner's legal status, business qualifications, market resources, industry experience, commercial reputation, capacity to perform, and compliance record, and should establish ongoing monitoring and performance evaluation mechanisms during the course of cooperation, so as to avoid adverse effects on the enterprise's brand and market positioning arising from the partner's poor management or violation of local laws.

It is particularly worth noting that, in addition to the Commercial Agencies Law, Chinese enterprises should also give full attention to the market access requirements and other relevant regulatory provisions applicable to the industry they intend to enter. Based on this firm's practical experience in the UAE, sectors such as medical clinics, private schools, travel agencies, real estate brokerage, food production, financial services, and oil and gas are subject to relatively stringent regulatory requirements; in addition to the Commercial Agencies Law, such sectors may also be governed by specialized regulations issued by the competent authorities for health, education, tourism, real estate, food safety, financial regulation, and energy, among others. Accordingly, before making an investment, Chinese enterprises should conduct thorough legal due diligence, focusing in particular on verifying whether the relevant industry permits foreign investors to conduct business directly, and whether it is necessary to appoint a qualifying local commercial agent or other local cooperating entity. At the same time, enterprises should continue to pay close attention to relevant legal and regulatory requirements concerning advertising, consumer protection, product quality, data protection, anti-money laundering, and taxation, and should establish a compliance management system covering market access, contract management, business operations, and internal controls, adjusting their transaction arrangements in a timely manner in response to changes in laws and regulatory policy.

Overall, the reform of the Commercial Agencies Law has provided a more open and flexible institutional environment for foreign enterprises entering the UAE market and has also brought new opportunities for Chinese enterprises seeking to expand into the Middle East market. However, institutional openness does not mean that legal risks have been eliminated. Chinese enterprises should, in light of their own business characteristics, conduct legal due diligence in advance, reasonably design their transaction structures and cooperation models, and ensure sound compliance management at key stages such as agency arrangements, contract performance, and adjustments to cooperation, seeking professional legal support in a timely manner where necessary, so as to effectively guard against legal risks and safeguard the steady development of their business in the UAE market.

Conclusion

The reform of the UAE's commercial agency system reflects the country's ongoing trajectory of expanding openness to the outside world and improving its business environment. While strengthening market competition and freedom of contract, the 2022 Commercial Agencies Law has further enhanced the flexibility available to foreign enterprises entering the UAE market. For Chinese enterprises, gaining a thorough understanding of the direction of this institutional reform, and reasonably planning their market entry model considering their business characteristics and industry-specific regulatory requirements, will help them seize the development opportunities presented by the UAE and the broader Middle East market.