The UAE government is set to introduce a new draft federal law on the regulation of commercial agencies, which will allow public joint-stock companies (PJSCs) with minimum 51% national capital contribution to act as commercial agents. It is currently being reviewed by the Federal National Council (FNC).
The move, which will enable commercial agencies to be registered as companies with a 51% to 49% equity ratio between UAE and foreign partners respectively, is intended to help attract foreign capital and ensure alignment with international business standards.
In the UAE, a commercial agency is an arrangement under which an international company appoints an agent to distribute, offer or negotiate the sale or purchase of goods on its behalf within the UAE market for commission or profit. This includes franchising and distribution agreements.
The commercial agency arrangement must be exclusive – in respect of one or more Emirates or the whole UAE – and must be notarised and, if signed outside the UAE, attested. It must also be registered in the Commercial Agencies Register maintained by the Ministry of Economy in the relevant Emirate or, if for the entire UAE, with the Ministry of Economy in Abu Dhabi.
Previously, only UAE nationals or companies wholly owned by UAE nationals were entitled to carry out commercial agency activities in the UAE. The new draft law is designed to generate more business opportunities for UAE citizens and expand access to the commercial agencies business.
“Now that 40 years have passed since the original law was drafted, only 6,000 commercial agencies have been registered which is a modest figure, considering the current economic potential boasted by the UAE and the conducive business environment in the country,” said Abdullah bin Touq Al Marri, UAE Minister of Economy.
“Only UAE nationals can act as commercial agents, which is similar to the position under the old law, but the new draft law gives the right for public joint-stock companies and public legal entities with at least 51% national capital contribution to register commercial agencies.”
The existing law was also restrictive because a ‘valid reason’ for termination – as accepted by the Commercial Agencies Committee or with the express agreement of both parties – was required to terminate a registered agency agreement, even after the expiry of the contract term. Under the new draft federal law, the agency contract terminates on the expiry of the contractually agreed term.
Al Marri also said a new draft law on cooperatives would allow for the establishment of various forms of cooperatives in the country to benefit from the economic and development opportunities offered by this vital sector, with a view to enhancing its contribution to the GDP.