Commercial Agency vs Company Set Up - Options for doing Business in the UAE
For companies looking to access the UAE market the first major decision is whether to use an Agent (a Commercial Agent and/or a Distribution Agent) or to set up a Sales Office or to set up a full local UAE Trading company.
Using an agent will be cheaper in the short term as there are no company set up costs and requirements and will mean that you can mobilise and be in a position to win work quicker. You will be using the Agent’s company and licence and they will sell your product or deliver your service, the Agent will then typically charge a percentage of sales.
However using an Agent it also means giving up an element of control, the Agent will ‘own’ you product and brand in the UAE and you will need to ensure that the Commercial Agent does not also have competitor companies in their portfolio that may conflict with your product or service.
We would urge you to seek legal advice before signing any Commercial Agency Agreement in the UAE or covering the wider GCC or MENA region, as Commercial Agency in this region is very restrictively in favour of the local party and exclusivity and indefinite terms can often be implied in these contracts even if they are not stipulated within the document.
Types of Agent in UAE
- Commercial Agent
A Commercial Agency contract in the UAE is normally an exclusive contract between the Foreign Party and a Local Emirati owned Commercial Agency. The Commercial Agent will be in control of the marketing and sales of the product or service in the UAE. If the Foreign Party wants to take back full control in the future, this would be relatively difficult to do as the registered Commercial Agent would need to agree to relinquish control. The desire for the Foreign Company to take back control from the exclusive deal with their Commercial Agent has been the reason behind some very extensive legal cases in the UAE in recent years.
- Distribution Agent
A Distribution Agent contract is a normally a non exclusive contract for a Local Emirati owned agent to have rights to market and sell the Foreign Company’s products and services. The Foreign Party can enter into relationships with multiple distribution agents. If the agreement is not well drafted between yourself and the Distribution Partner, then the Distribution Partner can argue that you have entered into a Commercial Agency agreement this is very common in the UAE, again we strongly advise seeking legal advice before choosing this route. Please note that some products do require a registered commercial agent in order to sell these types of products in UAE.
- National Service Agent / Local Service Agent
The first thing to note is that a Local Service Agent (LSA) and National Service Agent (NSA) is the same thing. If you establish a Foreign Branch, a Sole Establishment or a Rep Office then you will need to be ‘Sponsored’ by a Local Emirati (or Emirati Company) who will become your National Service Agent. The Foreign Party will still own the entity 100% but they must have Sponsorship in the form of a Local or National Service Agent. The main difference between a Foreign Branch and a Rep Office is the activities that the entity will be able to carry out.
Company Set up options in UAE
- Set up a Rep Office or Sales Office in the UAE to control the sales and marketing process
As per above, both a Foreign Branch and Rep / Sales office will require a National Service Agent (NSA). The main distinction here is that a Foreign Branch must carry out the same activities as the mother company and so will typically provide their service themselves and therefore would not require a Commercial or Distribution Agent – although a Foreign Branch or Rep office cannot ‘Trade’ in products directly in the UAE. A Rep office or Sales office does not obtain a licence to provide or sell (trade) the Mother Companies services or products to the UAE market. Therefore the Rep / Sales office will still need to leverage a relationship with a Local Emirati Commercial or Distribution Agent. The staff within the Rep / Sales office typically are on the ground to provide support and expertise to their Commercial and Distribution partners.
- Set up a full LLC in UAE for the purposes of Trading or a Foreign Branch for Services
If the Foreign Company wants to maintain total control of their brand in the UAE then they must establish either a Limited Liability Company (LLC) or a Foreign Branch (FB). Whether it is an LLC or Foreign Branch is dictated by the activity of the company. Ownership laws in the UAE dictate that if the Foreign Company needs to establish an LLC (which you must for Trading) then the Foreign Company must find a Local Emirati or Emirati Company to own 51% of the shares of the UAE LLC. Alternatively if the companies activities fall under Consultancy or Services (not Trading) then the Foreign Company may establish a Branch with a National Service Agent. The Foreign Company will still own 100% of the Branch. In both these cases (LLC or FB) the Foreign Company will require full operations to be present in the UAE.
How can PRO Partner Group help: Commercial Agency
PRO Partner Group (PPG) can act as your ‘Registered Commercial Agent’. PPG can act as a non-exclusive nominee Commercial Agent and allow the Foreign Party to make multiple partnerships with Distribution Partners. This allows the Foreign Party to set up multiple agreements with Distribution Partners, safe in the knowledge that they will not be tied into any irreversible exclusivity deals with any of their Distribution Partners. PPG will also offer an ‘exit clause’ should the Foreign Party wish to exit the agreement.
PPG will not act as Distribution Partner, the success of the product in the UAE will be down to the Foreign Party and their Distribution Partners. PPG guarantees that the Foreign Company will not be tied into an irreversible deal with PRO Partner Group.
PRO Partner Group can assist to set up LLC or Foreign Branch
In the case of the Foreign Company wanting to maintain control of their products and services they will need to establish an LLC with a 51% Emirati shareholder or a Foreign Branch with an appointed Emirati National Service Agent. In both these scenarios PRO Partner Group has pioneered a ‘Corporate Nominee’ platform to ensure that the Foreign Company maintains full control of their business to ensure that they control their products, services brand and IP, and have full management control of their local UAE Company.
For further information on Commercial Agency, Local Partnership and setting up an LLC Company or Foreign Branch in UAE or obtaining special approvals or any other related government liaison or PRO matter in the UAE click our contact us form below, email me on email@example.com or call us on +971 (0)4 456 1761 in Dubai or +971 (0) 2 448 5120 in Abu Dhabi.