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On 31 May 2020, Federal Law No. 11 of 2020 was published in the United Arab Emirates (“UAE”) Official Federal Gazette No. 679, and entered into force on 1 June 2020. Federal Law No. 11 of 2020 implements the anticipated changes to the Federal Law No.18 of 1981 Regulating Commercial Agencies (the “UAE Agency Law”) announced by the UAE Cabinet General Secretariat in January 2020 and, in addition to some minor amendments to the UAE Agency Law, makes a fundamental modification to which types of UAE legal entities can register a commercial agency arrangement at the UAE Ministry of Economy.
Previously, only UAE nationals or companies wholly owned by UAE nationals could qualify for registration as a commercial agent at the UAE Ministry of Economy and hence only UAE nationals, or companies wholly owned by UAE nationals, could avail the protections afforded to registered commercial agents under the UAE Agency Law.
These national ownership requirements naturally discouraged local UAE family businesses, which had existing registered commercial agencies as part of their business portfolio, seeking external investment either through a private placement or an initial public offering (“IPO”) due to the fact that any private or public offering would have to be restricted to UAE nationals in order to maintain and comply with the 100% UAE national ownership requirement.
This commercial inhibitor has now been removed as a consequence of the amendments to the UAE Agency Law introduced by Federal Law No. 11 of 2020, which has essentially introduced two additional legal entities that may qualify for registration as a commercial agent in the UAE. Now, post the enactment of Federal Law No. 11 of 2020, in order for a commercial agency arrangement to be registered at the UAE Ministry of Economy, the agent must now be:
The additional registration criteria previously required for effecting registration at the UAE Ministry of Economy has not changed under Federal Law No. 11 of 2020 (i.e. the relevant commercial agency arrangement must be exclusive, either in respect of an Emirate or Emirates or the entire UAE and the commercial agency agreement must be notarised and accompanied by certain supporting documents).
A word of caution is that the Minister of Economy will, in due course, issue a resolution on the procedures and controls necessary for the engagement of a PJSC or private companies owned by a PJSC (meeting the national ownership criteria) in commercial agency activities in the UAE but, in principle, local family businesses are now able to convert their private companies into a PJSC in order to seek foreign equity investment without the risk of losing their registered commercial agent status (assuming, of course, that at least 51% of the shares in the PJSC are and continue to be held by UAE nationals). It is, as yet, unclear as to what those procedures and controls will be and when they will be published by the Minister of Economy.
The enactment of Federal Law No. 11 of 2020 represents the most significant change to the UAE Agency Law since 2010. This latest amendment constitutes a milestone in encouraging local companies with commercial agencies in their business portfolio to access the equity markets for additional funding and investment, which in turn will act as a stimulus to the local capital markets.
It should also be noted that as a result of the above changes to the UAE Agency Law, existing UAE PJSCs that have a degree of foreign ownership (maximum 49%) that previously were unable to register commercial agencies in the UAE will now be able to do so. This expands the potential scope of UAE businesses that can register commercial agencies and encourages the UAE business environment.
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