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Revolutionising the UAE’s Economic Model: Embracing International Best Practices for a Dynamic Environment for Foreign Investment

Revolutionising the UAE’s Economic Model: Embracing International Best Practices for a Dynamic Environment for Foreign Investment

To advance the process of transforming the economic model, and achieve higher levels of flexibility and competitiveness in the country’s business climate, it is necessary to keep up with the best international practices in commercial transactions. This can be accomplished by ensuring transparency and clarity, raising the country’s classification on relevant economic competitiveness indicators, and providing a dynamic and fertile investment environment that encourages domestic and foreign investments, while increasing the investors’ confidence in the country’s business climate.

To promote local and foreign investments, the legislative authorities have issued a number of important laws, including the Federal Decree by Law No. 50 of 2022, which promulgates the Commercial Transactions Law, and Federal Law No. 3 of 2022, which regulates Commercial Agencies.

Federal Decree by Law No. 50 of 2022

Federal Decree by Law No. 50 of 2022, which replaced previous the legislation spanning nearly 30 years, defines the general axes of commercial business. Specialised commercial federal laws have been enacted to provide detailed provisions that apply in this regard

The decree’s main provisions are:

The federal decree by law provided for lowering the legal age of capacity from 21 to 18 years to engage in business. This has enabled new age groups to participate in business, contributing to the expansion of youth participation in the business sector.

The federal decree by law removed the requirement for women to obtain permission from their husbands before engaging in commercial activity. As a result, the law has increased opportunities for females to participate in economic and commercial activities, and supported their role as a key partner in economic and social development.

The federal decree by law established the legality of virtual businesses conducted through modern technology, stating that the same provisions established for commercial businesses conducted in person apply to them. As a result, the law established the first legal reference in the Arab region to regulate commercial activities using modern technological means, supporting the UAE’s goals in the sectors of the new economy.

The federal decree by law mandates the legality and authenticity of virtual commercial transaction records, as well as the sale of used movable property by public auction, and requires the availability of bids via a licensed electronic platform or through various modern technology means.
Under the federal decree by law, parties are allowed to agree on the validity of the International Chamber of Commerce’s rules governing international commercial sales in some cases.

Federal Law No. 3 of 2022

Federal Law No. 3 of 2022, which regulates Commercial Agencies, will come into effect on June 16, 2023, replacing the previous legislation that had been in effect for more than 40 years.

The law’s most notable provisions are:

The law limits the practice of commercial agency business to UAE nationals only, while allowing public shareholding companies incorporated in the country, with at least 51 per cent of its capital owned by UAE citizens, to practice commercial agency business.

The law allows international companies to conduct commercial agency business for their own products under certain conditions, and with the approval of the Council of Ministers. One of the most important conditions is that the commercial agency should not have a commercial agent inside the country.

The law provides a 10-year notice period for the expiry of commercial agency contracts registered for the agent himself for more than 10 years, or in which the volume of the agent’s investment exceeds AED 100 million. Additionally, the law provides a two-year notice period for agencies in force for less than that period, or in which the volume of the agent’s investment is less than AED 100 million. This is intended to protect the stable conditions in this vital sector.

Unless the parties agreed otherwise in the contract, the term of the commercial agency contract shall be five years if the agency contract stipulated the preparation of buildings, warehouses, or facilities for maintenance and repair.

The law states that only commercial agencies registered in the Ministry of Economy’s commercial agencies register are permitted to conduct business in the country. Any commercial agency not registered in this register is not considered valid.

The law specified explicit and specific cases for the termination of the commercial agency contract in the interest of the national economy. These provide the best services and prices to consumers through fair competition between agents, whether through the entry of potential new agents to the market, or through improvements to the performance of existing agents, thereby encouraging them to maintain a strong business relationship.

The law regulates the procedures and provisions for terminating the commercial agency with mandatory controls, provisions, and notice periods, which must be one year or half of the remaining contract period, whichever is less, unless otherwise agreed. The law also specifies the clear and specific conditions for the transfer of assets to the new agent at a fair value.

The new law also ensures the continuous flow of goods and services in the event of a dispute between the principal and the agent. The Ministry designates exclusive sources to facilitate the flow temporarily, and the principal is responsible for any compensation awarded to the agent by a final court decision.

The formation of the Commercial Agencies Committee was approved by the Council of Ministers. The committee’s role is to investigate disputes between parties regarding a commercial agency that is registered with the Ministry. Cases cannot be brought before the courts until they are first presented to the committee for consideration.

The law established a new mechanism for resolving disputes between parties through arbitration when the agency parties agree, and the committee’s decision is issued within the prescribed appeal period.

The law empowered the Council of Ministers to release any activities or materials from commercial agencies in accordance with the controls it specifies, based on the recommendation of the Minister of Economy, and after coordination with the competent authorities, provided that the Cabinet’s decision sets a date for editing these activities or materials.

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