APPOINTMENT OF A COMMERCIAL AGENT

A foreign business may decide that it does not wish to invest in establishing a local commercial entity or a branch office in the UAE if, for example, it simply intends to export goods or services to the UAE. In this situation an agent, distributor or franchisee (which must be either a UAE national or a company owned 100% by UAE nationals) can be appointed.

The Commercial Agencies Law regulates these arrangements. There are certain express requirements as to the content of any agency agreement. It is possible for UAE commercial agents to register agency agreements with the Ministry of Economy, and this gives rise to certain rights and obligations and a high level of statutory protection for the agent.

Although agency is usually on a sole basis, it is possible for a foreign principal to have more than one agent registered in the UAE, either by appointing a different agent in each Emirate for the same goods or services, or a different agent for different goods and services. In practice, it is quite common to divide the UAE into two territories, being Abu Dhabi on the one hand, and Dubai and the Northern Emirates on the other.

Prior to signing an agency agreement, it is important both to understand and agree the scope and term of the agency, the available means of terminating the agreement, and the precise effect of registration. Changes to the Commercial Agencies Law have gone some way towards redressing the balance of principal and agents' rights where previously the principal under a registered commercial agency agreement could find itself tied into a perpetual agency relationship notwithstanding any written agreement to the contrary. Termination is usually only available if there is justifiable cause to terminate or both the principal and agent agree. Compensation will normally have to be paid to the agent, which could consist of three years average gross profits.