The main methods by which foreign businesses may establish a presence in the UAE are as follows:
Appointing an agent or distributor.
Incorporating a limited liability company.
Establishing a branch or representative office of a foreign company.
Establishing a professional partnership or professional sole proprietorship (with unlimited liability).
Establishing a company or opening an office in a free trade zone.
The procedures and requirements for establishing a business often involve liaising with a number of institutions and bodies, both local and federal depending on the nature of the venture and the legal structure.
Appointing an agent or distributor
A foreign business operating in the private sector can supply products to its customers directly in the UAE and therefore may not need to appoint an agent or distributor.
Such arrangements are common in respect of low volume or bespoke products, the import of which is arranged directly by the customer.
However, some foreign companies prefer to appoint an agent in the UAE who can source and market to customers, handle logistics, sponsor employees for UAE residency and work visas and generally co-ordinate the sales process on behalf of their foreign principals.
Moreover, in order to tender for government projects in the UAE, foreign companies are generally obliged to appoint an agent or obtain a suitable operating licence of their own.
The UAE legal system distinguishes between two forms of commercial agency: the registered and unregistered agency.
Registered Commercial Agency
Registered Commercial Agency agreements are agreements between companies and agents which are registered with the Ministry of Economy. Only UAE nationals or 100% UAE owned companies may be registered as agents with the Ministry.
Once registered, the agency agreement is given substantial protections under the UAE Commercial Agencies Law. These include the agent’s exclusive right to market and sell a particular product in one or more of the Emirates. The agent is also entitled to commission payable on any sales of products regardless of whether the registered agent contributed to the sales.
A registered agent is ordinarily able to prevent parallel imports of the same product into their territory. Whilst this can be a useful tool for foreign principals wanting to limit sales of competing products in the Emirates, it can also prevent a principal from appointing another agent or from selling its own products directly to the market.
Registered agency agreements can be difficult to terminate. Even if termination provisions are agreed in writing in advance, and complied with, a registered agent may be entitled to payment of substantial compensation if such termination is deemed to have occurred at an inconvenient or inappropriate time or is otherwise considered unjustified.
Unregistered Commercial Agency
Unregistered Commercial Agency agreements do not benefit from the protections offered by the Commercial Agencies Law, but are instead governed by the Commercial and Civil Code.
On strict reading of the Commercial Agencies Law, a foreign principal that supplies products to its agent under an unregistered agency agreement may not be entitled to sue the agent for payment of their products through the courts. However, claims may be heard under the provisions of the UAE Civil Code. It is therefore advisable to insist on guaranteed methods of payment in the agency agreement.
A prospective UAE agent is likely to insist on the establishment of a registered as opposed to an unregistered agency. In all cases, commercial agency agreements should be carefully drafted and foreign companies should seek legal advice before entering into any agency agreement.