Ending a registered distributor relationship in the UAE has become more straightforward since June 2025, but principals still face mandatory notice periods, a government committee process, and compensation exposure that can run into seven figures.
This guide covers the current rules, realistic timelines, and termination costs.
Is your distributor relationship a "commercial agency" under UAE law?
Not every distribution agreement is a commercial agency. The distinction matters because it determines whether the Commercial Agencies Law applies to your exit.
A commercial agency exists when:
- A UAE-based agent is authorised to distribute, sell, or promote a foreign principal's products or services
- The relationship is exclusive to at least one emirate
- The agency is registered with the Ministry of Economy
You can verify registration status through the Ministry of Economy's Commercial Agencies Register. If your relationship is not registered, the statutory termination framework does not apply - you are dealing with an ordinary commercial contract governed by its terms and UAE civil law.
If it is registered, the rules below apply.
The June 2025 deadline and what it changed
Federal Law No. 3 of 2022 replaced the 1981 Commercial Agencies Law, which made it nearly impossible for principals to exit registered agencies without the agent's consent or a court finding "material reason" for termination.
The new law recognises termination at contract expiry, termination according to contract terms, and mutual termination. But for agencies registered before June 2023, these provisions were frozen for two years.
That freeze ended on 15 June 2025.
Principals with pre-2023 registered agencies can now terminate or decline renewal under the new rules - with one exception. Agencies registered with the same agent for over 10 years, or where the agent has invested over AED 100 million, remain under the old protective framework until June 2033.
Notice periods for termination and non-renewal
The law requires written notice before termination or non-renewal. The minimum is one year before the intended termination date, or before half the contract term elapses - whichever comes first.
For a five-year contract, notice must be given at least one year before expiry. For a two-year contract, notice must be given before the one-year mark.
Missing the notice window does not prevent termination, but it gives the agent grounds to challenge and potentially extends the relationship until the Committee resolves the dispute.
The Commercial Agencies Committee process
Disputes over registered agencies must go through the Commercial Agencies Committee at the Ministry of Economy before either party can access the courts.
If your agency agreement contains an arbitration clause, you can proceed to arbitration after the Committee stage rather than UAE courts. The Committee's decision is then set aside.
Termination vs non-renewal: which route applies
Non-renewal means letting the contract run to its stated expiry date and not extending it. You serve notice within the required window, the term ends, and the agency expires. The agent can still claim compensation (see below), but there is no breach.
Termination means ending the contract before expiry - either because the contract permits it (termination for convenience, termination for cause) or through mutual agreement. If the agent disputes your grounds, the matter goes to the Committee.
Mutual termination is a negotiated exit where both parties agree on terms, settlement amount, stock handling, and de-registration. This bypasses the Committee process entirely.
For most principals, non-renewal at expiry is the cleanest route if timing allows. Early termination requires either strong contractual grounds or a negotiated settlement.
Compensation claims: what agents can recover
Lawful termination does not mean cost-free termination. The law provides three compensation grounds.
Compensation on non-renewal
When an agency expires and is not renewed, the agent can claim damages for losses resulting from the expiry. This applies unless the contract expressly excludes compensation on non-renewal - an exclusion the new law permits and courts will enforce.
Check your agreement. If it contains language excluding compensation on expiry, your exposure on non-renewal is limited. If it does not, expect a claim.
Compensation on termination according to contract terms
If either party terminates in accordance with the contract (for breach, for convenience, or otherwise), the affected party can claim compensation for damage suffered. This is mutual - principals can claim against agents who wrongfully terminate, and vice versa.
Success-based compensation
This is the provision that generates the largest claims. If the agent can demonstrate that their efforts contributed to the principal's success in the UAE - building brand recognition, expanding the customer base, increasing sales - they can claim compensation for being deprived of future profits from that success.
The law does not cap this amount or specify calculation methods. Courts assess claims based on the agency's duration, sales trajectory, marketing investment, and the agent's role in generating business.
Import blocking during disputes
A registered agent can instruct UAE customs to hold products covered by the agency. Customs will not release goods to anyone other than the registered agent without Ministry approval.
This is the agent's primary leverage in disputed terminations. Supply to your UAE customers stops. Your regional business suffers. Settlement pressure increases.
The new law allows principals to apply for Ministry permission to continue imports during disputes, but approval is not guaranteed and the process takes time. Until de-registration is complete, the blocking right continues.
Factor supply disruption into any termination scenario involving a contested exit.
What affects settlement amounts
Commercial agency terminations in the UAE typically settle. The variables that drive settlement value include:
Duration of the relationship. A 15-year agency commands more than a 3-year agency, particularly for success-based claims.
Sales performance. Strong sales growth during the agency period supports the agent's argument that they built value. Flat or declining sales weakens it.
Marketing investment. If the agent funded showrooms, promotional campaigns, or market development, they will seek recovery. If the principal funded these activities, the agent's claim is weaker.
Contract terms. Agreements that exclude compensation on non-renewal, cap liability, or require specific performance benchmarks limit exposure. Agreements silent on these points leave more room for claims.
Replacement arrangements. If the principal is appointing a competitor distributor or going direct with a large team, the agent can argue they are being displaced by someone who will profit from the market position they built.
Stock and receivables. Outstanding inventory, slow-moving stock, and unpaid receivables complicate exits. These often form part of settlement negotiations.
Preparing to terminate
Six months before you intend to act:
- Confirm registration status with a Ministry extract
- Map the notice deadline based on your contract term
- Review the agreement for termination rights, notice provisions, and compensation exclusions
- Compile at least three years of sales data, marketing spend records, and performance correspondence
- Identify stock exposure and supply chain dependencies
- Determine whether the 10-year protection category applies
The documentation you assemble serves two purposes: supporting your position if the agent challenges, and establishing realistic settlement expectations if you negotiate.
Exit routes compared
After termination
Exiting an agency creates follow-on matters that require attention.
De-registration. The agent must apply to de-register the agency within 60 days of termination. Until this happens, customs blocking rights may continue. Include de-registration obligations and timelines in any settlement agreement.
Replacement distribution. Whether you appoint a new distributor or establish direct operations, the new structure should address gaps exposed by the previous relationship. If you are setting up a local entity, the choice between mainland and free zone incorporation affects your distribution model.
Stock and receivables. Unsold inventory, promotional stock, and outstanding payments need resolution. Settlement agreements typically address whether the principal repurchases stock, at what price, and how receivables are allocated.
Ongoing claims. If the agent pursues compensation through litigation or arbitration, you may need to enforce or resist any resulting award depending on the outcome.
Joint venture unwinding. Where the agent held equity in a local JV or the parties had cross-shareholdings, unwinding those arrangements is separate from the agency termination. See our shareholder disputes page.
Get a termination assessment
Before serving notice or entering settlement discussions, you need clarity on:
- Whether the relationship is registered and which termination rules apply
- Whether your contract supports your intended exit route
- What notice deadline applies to your situation
- Realistic compensation exposure based on the relationship's specifics
- Supply chain and operational risks during a contested exit
Send your agency agreement and registration documents. We will provide an initial assessment of your position and options.
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