The UAE's Commercial Agency Law: Redefining Principal–Agent Dynamics in a Global Business Hub

The United Arab Emirates (UAE) has taken a bold legislative step toward modernising its commercial framework with the enactment of Federal Law No. 3 of 2022 (the “Commercial Agency Law”), which came into effect on 15 June 2023, repealing the longstanding Federal Law No. 18 of 1981. This shift signals a recalibration of the principal–agent relationship in the UAE, aligning domestic commercial agency regulation with the country’s broader economic strategy to attract global business, enhance competition, and foster investor confidence.

This article explores the key features and practical implications of the new law, with a particular focus on its impact on commercial certainty, dispute resolution, and agency dynamics.

A Structural Overhaul: Repealing a 40-Year Regime

The old commercial agency law had long been seen as rigid, heavily favouring registered local agents and limiting principals’ flexibility in contract structuring and termination. The new law introduces a modernised regime intended to balance the interests of local representation with international business standards. For both foreign and local businesses, this represents a significant evolution in the UAE’s commercial landscape.

Arbitration in Agency Disputes: A Groundbreaking Inclusion

One of the most notable changes is the introduction of arbitration as a valid mechanism for resolving commercial agency disputes. Previously, such disputes fell under the exclusive jurisdiction of the Commercial Agencies Committee (the “Committee”), followed by UAE courts, a process that was often viewed as time-consuming and unpredictable.

Now, while parties are free to agree to arbitrate their disputes, they must still first submit grievances to the Commercial Agencies Committee for an initial decision. Only after the Committee has heard the matter can arbitration proceedings commence, at which point the Committee’s decision will no longer bind the parties.

By allowing parties to agree to arbitration, the law aligns agency relationships with global best practices, providing a potentially more efficient, neutral, and commercially sensitive route for dispute resolution. This reform is expected to enhance confidence among foreign principals and institutional investors, particularly in sectors where long-term distribution agreements are critical.

Increased Termination Flexibility

The new law relaxes restrictions on termination, enabling principals to end agency contracts more freely under specific circumstances, such as upon expiry, mutual consent, or for “justifiable cause” as defined in the agreement or law.

Previously, termination was heavily restricted and often contested by agents, even after the contract had expired. The revised framework seeks to rebalance bargaining power, providing principals with clearer exit pathways while still preserving protections for agents in cases of wrongful termination. The effect is a more dynamic and commercially rational agency environment.

Local Agents: Reduced Protections and Rising Competition

For local agents, the new law marks a significant shift. Where the old framework offered substantial protections, particularly for long-standing, registered agents, the new law limits these automatic guarantees, especially in renewals and disputes.

While these changes may enhance commercial agility and reduce legacy lock-ins for principals, they also introduce uncertainty and competitive pressure for local agents, who must now adapt to more market-driven dynamics. Agencies previously reliant on legal entrenchment must now focus on performance and strategic alignment to remain viable partners.

Direct Sales by Foreign Principals: A Pathway to Disintermediation

Perhaps the most transformative provision is the law’s allowance for direct sales by foreign principals, subject to approval by the Cabinet. This policy enables foreign manufacturers and suppliers to enter the UAE market without the need for local agents, provided they meet specific regulatory conditions.

This development introduces competitive tension into the market and gives principals greater leverage in negotiating agency terms. However, it also introduces compliance complexities, requiring careful consideration of regulatory approval processes and potential market reaction.

Transition Periods

Pre-existing commercial agency agreements in the UAE are shielded from the immediate impact of Commercial Agency Law’s more liberal termination and direct dealing provisions. The law carves out generous transition periods during which the old rules continue to govern long-standing relationships. In particular, any agency contract that was already in force when the new law took effect is exempt from the new termination rights for two years (until mid-2025), and those enduring for over a decade (or involving over AED 100 million in agent investment) enjoy a ten-year reprieve (until 2033).

This phased approach reflects a policy decision to respect established arrangements and give parties ample time to adjust to the rebalanced principal–agent regime before the new termination and direct sales rules fully apply. The result is that, for now, many incumbents continue under the previous law’s protective framework despite the legislative overhaul.

Compensation Scheme

Notwithstanding the expanded termination freedoms under the new law, the traditional compensation scheme for agents remains firmly in place to prevent undue harm to the local agent. An agent who suffers losses due to non-renewal or early termination can still pursue compensation if the agency’s end causes damage – for example, where the agent’s efforts grew the market for the principal’s goods and the termination cuts off the agent’s expected profits. The new law even strengthens these protections: if a fixed-term agency expires without renewal, the agent is presumptively entitled to damages for any resulting harm, absent an agreement to the contrary. Moreover, principals may be required to buy out the agent’s inventory and other agency-related assets upon termination.

In practice, this means the outgoing agent’s stock, showrooms, or equipment tied to the business must be purchased at a fair market value by the principal or a new incoming agent, failing mutual agreement on price (with UAE courts empowered to determine the value if needed). Such measures ensure that agents are not left bearing the financial brunt of a principal’s exit and help maintain equity in the principal–agent relationship.

Registration Requirement

The revised law reinforces the longstanding rule that only duly registered agency agreements enjoy legal recognition and statutory protection. In the UAE, a commercial agency contract must be registered in the Ministry of Economy’s Commercial Agencies Register to invoke the law’s safeguards – including exclusivity and access to the Committee’s dispute-resolution mechanism. Any agency deal not officially registered is simply not counted as a commercial agency in the eyes of the law, meaning the parties have no recourse to the Commercial Agency Law’s protective provisions and are treated as ordinary contracting parties.

This requirement underscores the UAE’s policy of formal oversight in the agency sector: principals and agents must formalize their relationships through registration if they wish to benefit from the law’s remedies (such as commission entitlements and termination protections) and the assurance of exclusive rights within the agreed territory. Failing registration, even a signed agency agreement will be deficient in terms of enforceability, leaving the agent without exclusivity and the principal without the certainty of the law’s framework.

Ongoing Import Restrictions

Despite the new law’s reforms, the exclusivity of a registered agent over the importation and distribution of the contracted goods remains a core feature of the UAE’s commercial agency system. In practice, this means that no other party – including the principal – can import those goods into the UAE for the duration of the agency relationship, unless proper authorization is obtained. Under the old law, agents could even invoke import bans during disputes, halting parallel imports and effectively freezing the principal’s supply line as long as the conflict persisted. The new law addresses the harshness of that scenario by empowering the Ministry of Economy to intervene in exceptional cases: during an ongoing dispute, a principal may apply for temporary permission to bypass the agent’s monopoly and bring in products through an alternate “exclusive source” approved by the Ministry.

Such permission, however, is not automatic – it is granted only to prevent market disruption and typically comes with conditions, including the principal’s continued liability to compensate the agent for any proven losses from those interim imports. Outside of this special dispensation, the registered agent’s rights remain intact: until an agency is duly terminated and deregistered (or a new agent is appointed with Ministry approval), the agent alone retains the exclusive privilege to import and sell the relevant goods in the UAE, even in the face of a pending dispute.

Business Impact: Strategic Flexibility and Risk Mitigation

For companies operating in capital-intensive sectors such as manufacturing, industrial equipment, or consumer goods, the new law offers opportunities to restructure agency relationships for greater alignment with commercial objectives.

However, the greater flexibility comes with increased legal risk, particularly in ensuring proper termination procedures and navigating transitional relationships with legacy agents. Businesses will need to adopt robust contract management protocols and remain alert to dispute exposure.

Comparative Insight: UAE’s Middle Path Between Tradition and Reform

Compared to EU regulations, which often emphasise agent indemnity and compensation, or the common law approach, which leans toward contractual freedom, the UAE’s law represents a hybrid approach. It retains certain agent protections but aligns more closely with international expectations of business fluidity and autonomy in dispute resolution.

This evolution positions the UAE in a progressive legal category, one that is suitable for international investors while also accommodating regional commercial sensitivities.

Looking Ahead: Early Trends and Legal Interpretation

While the legal text offers clarity on core reforms, judicial interpretation and arbitral enforcement will shape the practical application of the law. Questions around what constitutes “just cause” for termination or how Cabinet discretion on direct sales will be exercised remain to be tested.

As with any legal transformation, early implementation cases may trigger calls for interpretive guidance or targeted amendments. In the meantime, businesses should review their agency agreements and consult with legal counsel to ensure they remain aligned with the new framework.

The new law marks a pivotal recalibration of business norms in the United Arab Emirates. By embracing arbitration, easing termination, and opening the door to foreign direct sales, the legislation reinforces the UAE’s commitment to a competitive, investor-friendly environment. For principals and agents alike, proactive legal review and commercial re-alignment will be essential in adapting to this evolving landscape.

To discuss this further, contact Malcolm Abaza

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This material is provided for general information only. It should not be relied upon for the provision of or as a substitute for legal or other professional advice.