Changes to UAE Agency Law
As part of their continued efforts to facilitate doing business and to align their corporate legislation to international standards, the United Arab Emirates has proposed changes to the Federal Law No. 18 of 1981. Also known as the Agency Law, the proposed draft law will address two critical developments. What are these amendments to the commercial agency law in the UAE, and how could that alter the business landscape? We’ll examine the implications.
First, what’s the UAE Agency Law?
Federal Law No. 18 of 1981 Concerning the Organisation of Trade Agencies, more-commonly dubbed the Agency Law, is a piece of Emirati legislation that “...governs commercial agency agreements that have been registered with the UAE Ministry of Economy.” There is a significant caveat to this law because there are unregistered agency agreements that fall under the regulations of other Emirati laws, including the UAE Civil Code and the Commercial Transactions Law.
But, what is an agency?
The Agency Law defines an agency as “...representation of the principal by an agent for the purpose of distribution, selling, display or rendering of a commodity or service in the United Arab Emirates against a commission or profit...” As such, it encompasses a plethora of franchise, agency, commission, distribution agreements and other types of representative accords.
The Amendment in the Agency Law in the UAE
The latest amendment to the UAE commercial agency laws addresses two areas that are of interest. The core reasoning behind the change concerns boosting the country’s competitiveness, and as we mentioned earlier, its further alignment with international business standards. What are the modifications that are so pivotal in the draft law?
UAE commercial agency law and procedure change for increased financing
The first relates to the commercial agencies we defined earlier. What does the draft law plan to do in this regard? They are looking for commercial agencies, who in their vast majority are family-run enterprises, to enter Initial Public Offering (IPO) agreements. Why is the draft law amending this legislation crucial for these family-run commercial agencies?
The first is that the Emirati government wants family-run enterprises to enter financial markets, or in other words, to go public. The first step towards becoming a public company is issuing the IPO. The issue with the current legislation is that the current IPO requirements stipulate that a firm would have to give up a majority stake in the business. Many of these businesses would be willing to go public if the required stake they would need to surrender for the IPO were to be lower. What threshold are these firms willing to give up? Past consultations with leading groups said that if the stake were under 15-20 per cent, then it would be more willing to do so.
Another reason why more IPOs would be a boon is that, as Gulf News put it, “moribund.” The recently-announced Dubai Future District will include a new stock market as part of its ten initiatives to foster growth in new economy ventures. The speculation is that many of these enterprises could be heading to this stock market as it looks to attract smaller firms in search of more investment options.
Improved debt protections
Small-and-medium-sized enterprises, or SMEs, make up a significant portion of the entities in the Emirati economy. These corporations have traditionally faced significant roadblocks when it comes to financing, and the Dubai government recently launched a new fund to improve their access to banking services. Why does this matter? The draft law also hopes to implement measures that “...establish rules of governance and protection from defaulting.”
The new federal insolvency law that was part of the draft legislation creates a plan to help people deemed insolvent to pay off their debts without having to escape the country to escape imprisonment. Under the current debt law in the UAE, those who find themselves in debt are considered criminals and are charged fines if they pay anything late. Along with these fines, those in debt often face prison terms. One of the most infamous cases was that of former BlueBanana.com chief Simon Ford who fled to his native United Kingdom in 2009 to avoid jail time for unpaid debt during the economic crash. The new law also includes measures to protect people from loan sharks and others who previously looked to make fast money by threatening those in debt. These threats were one of the reasons Ford cited when he returned to the UK in 2009.
The idea is that these protections will make people more interested in entrepreneurship, and above all, eliminate the persistent fear of debt in the UAE, especially for the foreign residents who make up such a significant part of the economy’s human capital and population. With up to three years to pay it back and a court-appointed expert in charge of the repayment plan, the plan involves all parties. It permits the debtors not to pass the undue burden onto their families because, after all, the entire family bears the weight of the actions of the head of the household in the United Arab Emirates.
Are you looking for your agency to capitalise on these new opportunities?
The United Arab Emirates offers a wealth of business opportunities, and at Europe Emirates Group, we can support your company formation needs in all areas of the country. One of the most attractive components of the Emirati business community is the 45 Free Zones all around the country, each with a particular focus on a sector and special rules concerning governance. If you would like to learn more about your options for operating in the United Arab Emirates and seek an agent/intermediary with the expertise that can get you there, get in touch with us today.
Written by
Adrian Oton, CEO Europe Emirates Group
