The Commercial Agency Agreement in 2022
Registration of a 100% foreign owned company in some of the Middle East countries is time consuming, expensive, requires a high amount of share capital to be deposited and requires a myriad of compliances to be fulfilled before a company is able to operate. A simpler, more cost-effective way of doing business in these countries is through a Commercial Agency Agreement (also called “Agency Agreement”).
Since 2003, Healy Consultants Group has consequently assisted our Clients in i) securing a reliable local agent ii) conducting due diligence on the potential partner iii) drafting and negotiating terms and conditions of the agency agreement and iv) registering the agency agreement with the Ministry of Commerce and Industry. Over the past year, we also assisted our Clients to v) secure an import license (if required) vi) apply for employment visas vii) open corporate bank accounts and viii) other business support services.
What is a Commercial Agency Agreement?
- The Agency Agreement is essentially a partnership between a country national and a foreigner whereby the national (thereafter referred to as “agent” or “sponsor” or “distributor”) agrees to represent, promote and sell goods and services locally on behalf of our Client in return for a fee or commission;
- The commercial agency agreement is the quickest way to enter these Middle East markets because it allows foreigners to do business (through the agent) without the need to register a legal entity or securing foreign investment license;
- The Commercial Agency Agreement is governed by the commercial agency law. Both, the agent and the agency agreement must be registered with the Ministry of Commerce and Industry and all contracts and invoices must contain the agent’s name, address, type of agency, region and Commercial Agency Agreement registration number;
Agency rules in different Middle East countries
- In Saudi Arabia, the legal agency contract is covered by the Kingdom’s commercial agency law. The Saudi agent or distributor must register the contract with the Ministry of Commerce and Industry, failure could result in fines and other penalties, the foreign company may be barred from participating in public sector tenders;
- In Qatar, the Qatar Commercial Agents Law No.(8) 2002 regulates the appointment of commercial agents, sales representatives, and distributors within Qatar. A commercial agent is appointed to distribute, sell, offer, or provide goods or services within the Qatar for commission or profit;
- In Dubai and Abu Dhabi, the UAE Commercial Agencies Law regulates the appointment of commercial agents, sales representatives, and distributors within the country. A commercial agent is appointed to distribute, sell, offer, or provide goods or services within the UAE for commission or profit.
- In Kuwait, the Commercial Agencies are regulated by the Law No. 13 of 2016 Regulating Commercial Agencies and the Law No. 68 of 1980 (the Commercial Law). Both, the agent and agency agreement must be registered with the Ministry of Commerce and Industry. Thereafter, the agent will be responsible for representing our Client’s company in Kuwait;
- Nationals of these countries prefer to do business with someone after they are properly introduced and have met face-to-face. An agent can act as a “go-between” to vouch for the reliability and credibility of both parties;
- Whilst English is widely spoken in business and government circles, all correspondence with the government authorities is conducted in Arabic and the agent will be able to offer help in this aspect;
- Disputes with agents and distributors can cause serious problems for foreign investors. It is essential for our foreign investors to take steps to ringfence themselves including i) completing thorough due diligence of the proposed agent and ii) retaining legal counsel to review and approve a well-drafted agency agreement.
- The local agent will be appointed as the bank signatory to the bank account, together with our Client;
- Violation the Commercial Registration Law will trigger steep fines. In addition, foreigners may face i) liquidation of the commercial agency business and ii) prohibition of doing business in the country and iii) deportation of foreign staff employed by the commercial agency or sponsored by the agent;
How we proceed
- Before contracting an agent or distributor, Healy Consultants will assist our Client to i) secure confirmation of interest from multiple professional agent companies ii) negotiate the best terms and conditions with the agents iii) obtain detailed due diligence on our Client’s preferred agent including passport copy, resume, professional reference letters;
- Thereafter, Healy Consultants will draft on behalf of our Client a quality agency contract. We usually include the following clauses in the document: i) the agent will not interfere with the business’s management or activities and ii) he will be paid a lump sum and/or a percentage of profits or turnover and iii) the agency agreement is for a fixed term and expires on a future agreed date, unless both parties agree renewal and iv) select binding arbitration as the method of dispute resolution with the arbitration centers in Europe or North America;
- If needed, we engage a local lawyer or accountant to critically review legal agency agreements. We also recommend our Clients to visit the country for a face to face meeting with the agent before signing the agreement and commencing business;
- Once the Commercial Agency agreement is completed, the same is signed in front of a local Notary Public and registered with the Ministry of Industry and Commerce.
Timeframe and fees
- Within approximately 2.5 months Healy Consultants Group can supply our Clients with a commercial agency registration number. Immediately after, our Client can start using these details and the agent’s company details to issue invoices and sign local contracts;
- Refer to the breakdown of the Saudi fees here and the Kuwait fees here.