Could a Commercial Agency be the most effective way for a foreign company to sell its products in the UAE?

Foreign companies, particularly those that wish to trade products in the UAE will need to consider the available options for how best to structure their sales channels. An attractive option for many organisations would be to appoint a Commercial Agent or Distributor in the first instance as it requires minimal investment and can carry less risk as a result.

What are the requirements and the considerations when it comes to the appointment of a Commercial Agent/Distributor?

It is typical in many international markets for a foreign manufacturer to look for a distribution partner before entering a new market. The parties would agree on the terms and conditions of their distribution arrangement, which can include sales targets, termination provisions, notice period, etc.

In the UAE, Article 3 of UAE Federal Law No. 18 of 1981 (“Commercial Agencies Law”) states that a Commercial Agent can only be a UAE national or a UAE-owned commercial entity . In addition to the restrictions placed upon the choice of distribution partner, commercial agencies can only be deregistered if both parties agree, which can cause potential issues if the parties are unable to agree on the termination of the agreement. This can cause issues as the company will be unable to change partners as per the Commercial Agencies Law.

A common method used to sell and distribute products in the UAE is through a distributor. Many of companies that offer this are foreign owned and would therefore not qualify for agency registration under the Commercial Agencies Law. There are also instances where appointing a Commercial Agent may be a requirement, including participation in public tenders. When issuing public tenders many UAE government authorities will not accept bids from parties who do not have an appointed Commercial Agent. Therefore, manufacturers whose products are aimed for use in the public sector, such as manufacturers of school or hospital equipment, may be forced to appoint a Commercial Agent if they wish to participate in such tenders.

When appointing an Agent, the parties are required to clearly specify the territory for which the agent is appointed (and thus, becomes the sole distribution channel), as well as the products for which the agent will be responsible.

A similar approach should be taken when specifying the product(s) that will be the taken on by the Commercial Agent. There is absolutely no reason to appoint the agent for all of the products if that is not necessary to meet the foreign manufacturer requirements.

In conclusion, it is important for the foreign manufacturer to undertake thorough due diligence before appointing a Commercial Agent to ensure they limit their exposure under the Commercial Agencies Law. The foreign manufacturer will need to ensure that the terms and conditions are clearly stated in the agreement and that the proposed agent will grant the foreign manufacturer the flexibility to exit the arrangement at any time. The selected Commercial Agent should grant flexibility and the appointed distributor be reputable and able to handle the operational delivery of the product throughout the agreed territories.

Links Group offers a flexible Commercial Agency solution that is able to facilitate the sales and distribution of products across the UAE, including the registration of products with the Ministry of Economy. To find out more about how we can help you as a Commercial Agent please get in touch with Wayne Merrick, Head of Corporate Solutions, on consultants@linksgroup.com or +971 (0) 4 446 3900.

Article by Wayne Merrick on Nov 14th 2018