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The United Arab Emirates (UAE) has long positioned itself as a dynamic hub for commerce and trade, attracting businesses from across the globe. In its drive to reinforce economic growth and modernise business practices, the UAE introduced Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies (“New Law”), which replaced Federal Law No. 18 of 1981 (“Old Law”). The New Law came into effect on 15 June 2023, reshaping the framework governing the relationship between principals and agents.
Now, more than two years into its enforcement, the New Law has moved beyond theory and into practice. It has created a more transparent and flexible environment, encouraged foreign investment, and provided businesses and agents with a clearer framework for their contractual arrangements.
Key Reforms Under the New Law
Appointment of agents
The New Law continues to restrict commercial agency activity to:
Duration of agency contracts
Under Article 6 of the New Law, if an agency contract requires the agent to establish showrooms, warehouses, or service facilities, the contract must run for a minimum of five years, unless the parties agree otherwise.
Termination of contracts
The New Law introduced significant flexibility compared to the Old Law. Parties may now terminate or decline to renew a contract:
The terminating party must give at least one year’s notice (or notice equal to half the contract term, whichever is shorter), unless the parties agree to a different arrangement. A professional report must also be prepared, detailing settlement of dues, after-sales service commitments, assets, expected damages, and other key issues.
Any dispute relating to termination must first go before the Commercial Agencies Committee, before proceeding to arbitration (if agreed) or court.
Impact on existing agencies
The New Law introduced phased protections:
Compensation claims
Agents may claim compensation for termination or non-renewal only where the agency contract expressly provides for it. To succeed, the agent must prove that:
While the Old Law gave the Commercial Agencies Committee exclusive jurisdiction, the New Law now permits arbitration. Parties must first submit disputes to the Committee, but if dissatisfied with its decision, they may pursue arbitration instead of court litigation. The Committee’s decision is not binding on the arbitrator.
Looking Ahead: Market Impact
Two years on, the New Law has already reshaped how principals and agents approach their contractual relationships. Principals now benefit from greater flexibility in appointing and terminating agents, while agents enjoy clearer statutory protections. The allowance for international companies to register as their own agents has also opened the market to new entrants.
As the UAE continues to pursue its economic diversification agenda, the New Law strikes a careful balance: it safeguards national interests while signalling openness to foreign investment. For both principals and agents, careful drafting of agency contracts - particularly around termination rights and compensation - remains critical.
Conclusion
The New Law represents a milestone in the UAE’s evolving commercial landscape. By modernising agency rules, it creates a more transparent and competitive marketplace. Two years into implementation, businesses and agents are not only adapting to its requirements but also using the flexibility it provides to forge more strategic, balanced relationships. The law stands as a cornerstone of the UAE’s efforts to promote fair trade, boost investor confidence, and strengthen its position as a global business hub.
Now, more than two years into its enforcement, the New Law has moved beyond theory and into practice. It has created a more transparent and flexible environment, encouraged foreign investment, and provided businesses and agents with a clearer framework for their contractual arrangements.
Key Reforms Under the New Law
Appointment of agents
The New Law continues to restrict commercial agency activity to:
- UAE nationals;
- companies wholly owned by UAE nationals;
- UAE public joint stock companies with at least 51% UAE national ownership; or
- UAE private entities owned by a qualifying public joint stock company.
Duration of agency contracts
Under Article 6 of the New Law, if an agency contract requires the agent to establish showrooms, warehouses, or service facilities, the contract must run for a minimum of five years, unless the parties agree otherwise.
Termination of contracts
The New Law introduced significant flexibility compared to the Old Law. Parties may now terminate or decline to renew a contract:
- On expiry of its term (unless extended by mutual agreement);
- Unilaterally, if permitted by the contract;
- By mutual agreement;
- Through a court order; or
- As otherwise permitted under the law.
The terminating party must give at least one year’s notice (or notice equal to half the contract term, whichever is shorter), unless the parties agree to a different arrangement. A professional report must also be prepared, detailing settlement of dues, after-sales service commitments, assets, expected damages, and other key issues.
Any dispute relating to termination must first go before the Commercial Agencies Committee, before proceeding to arbitration (if agreed) or court.
Impact on existing agencies
The New Law introduced phased protections:
- For existing agencies, termination and non-renewal rights (expiry or unilateral termination) only applied after two years from 15 June 2023.
- Agencies with the same agent for over 10 years, or where the agent’s investments exceed AED 100 million, enjoy enhanced protection: termination rights will not apply for 10 years from the New Law’s effective date.
Compensation claims
Agents may claim compensation for termination or non-renewal only where the agency contract expressly provides for it. To succeed, the agent must prove that:
- Their efforts created substantial success for the principal’s products;
- Termination deprived them of future profits from that success.
While the Old Law gave the Commercial Agencies Committee exclusive jurisdiction, the New Law now permits arbitration. Parties must first submit disputes to the Committee, but if dissatisfied with its decision, they may pursue arbitration instead of court litigation. The Committee’s decision is not binding on the arbitrator.
Looking Ahead: Market Impact
Two years on, the New Law has already reshaped how principals and agents approach their contractual relationships. Principals now benefit from greater flexibility in appointing and terminating agents, while agents enjoy clearer statutory protections. The allowance for international companies to register as their own agents has also opened the market to new entrants.
As the UAE continues to pursue its economic diversification agenda, the New Law strikes a careful balance: it safeguards national interests while signalling openness to foreign investment. For both principals and agents, careful drafting of agency contracts - particularly around termination rights and compensation - remains critical.
Conclusion
The New Law represents a milestone in the UAE’s evolving commercial landscape. By modernising agency rules, it creates a more transparent and competitive marketplace. Two years into implementation, businesses and agents are not only adapting to its requirements but also using the flexibility it provides to forge more strategic, balanced relationships. The law stands as a cornerstone of the UAE’s efforts to promote fair trade, boost investor confidence, and strengthen its position as a global business hub.