DUBAI: New businesses and their owners are taking advantage of the 100% ownership option now allowed across categories, as the UAE’s updated commercial agency laws come into full force.
These benefits will permeate multiple industries – retail, services and consulting, among others – and will also attract international companies to expand their operations in the UAE. Because the law expressly allows international companies that currently do not have a UAE agent to assume this role for their products.
The changes brought about by the law – primarily not having to treat UAE nationals or companies owned by UAE nationals as “commercial agents” – are among the most important reforms brought in by the government in recent times.
“While we don’t know statistics on how many new businesses have opted for 100% ownership under the law, it is expected that many businesses will take advantage of the opportunity,” said Shahram Safai, partner at law firm Afridi & Angel. “(The updated law) provides greater control over their operations – (and) without the need to form partnerships with local sponsors or shareholders who may not be actively involved in day-to-day activities.”
Industry insiders say the set-up process has become smoother for the recent wave of new businesses in the country. “With the right documentation, a mainland entity can be set up within 1-2 weeks,” said Siddharth Kohli, chief executive of Dubai-based Indigenesis Consulting. “But businesses such as manpower outsourcing that still require the services of commercial agents continue to attract a lot of attention. This demand will continue to grow as multiple industries grow.” (For free zone based businesses, the commercial agency aspect does not apply.)
In January, the UAE announced a major update to the law, which has been an integral part of the business landscape for decades. The intent is clear – to provide business owners with the flexibility they need to start their business. as soon as possible.
For established businesses with commercial agents in the UAE, a time frame has been set to complete the transition and be 100% owned by the original shareholders.
Here’s how the transition works:
- After two years from the effective date of the new law, the termination rights under it will apply to all business establishments registered in the UAE.
- For existing registered commercial agents who have been registered with the same commercial agency for more than 10 years or where the investment of the agent exceeds AED 100 million, the right of termination applies only after 10 years from the effective date of the law.
- The UAE Ministry of Economy will determine the parameters for evaluating investment by agents.
These provisions of the law should result in a major shift in existing alliances with local commercial agents, but will allow ample time for all parties involved to adjust.
“The new Commercial Agents Act expands the legal basis for dissolution of registered commercial agents,” said Anoop Pillai, CEO of 3A Global. “This is in stark contrast to earlier versions, which limited the ability of settlors to terminate a registered business establishment without a court order.”
There is also more leeway in resolving any disputes between the principal and the commercial agent.
“Previously, disputes could only be adjudicated/decided by specialized committees of commercial establishments, while appeals of such decisions fell under the exclusive jurisdiction of UAE courts,” Pillai said.
“The new law allows parties to opt for decisions of commercial representation committees, which can be appealed and resolved through arbitration,” Pillai added. “This shows that the UAE is increasingly accepting arbitration as an alternative method of dispute resolution.”
“Positive” and “Negative” lists
Even with the changes, the updated law still requires the presence of a commercial representative for certain classes of business. These details must be front and center for any new business entering this market.
“The law only allows full ownership by foreign investors in specific business sectors and activities mentioned in the ‘positive list’ issued by the UAE Cabinet,” Safai said. “It is important to note that even if companies meet these standards, they must still obtain the necessary approvals from the relevant authorities before commencing operations under other regulatory requirements for their industry or activity, such as licensing.”
But the overall sentiment among businesses – potential and existing – is that a decisive point has been reached in the way they do business in the UAE. As with any new law or update, the remainder has to do with managing the transition.
Business owners will say that’s the easy part.