Risks of Appointing a Local Agent in the UAE: What's Behind the Term "Local Representative"?

In 2025, it seems the norm that in the UAE, it's possible to open a 100% foreign-owned company anywhere in the country, not just in free zones. Investors from around the world received this privilege thanks to Federal Decree No. 26 of 2020 amending the provisions of Federal Law No. 2 of 2015 "On Commercial Companies." Previously, entrepreneurs registering a new business or branch in the Mainland were allowed to own only 49% of the company by appointing a local agent. However, few people know that in some situations, entering the mainland market still requires appointing a local agent. Let's join Antwort Law to explore when this is necessary and how to choose the right agent to avoid potential risks.

First, let's define the concept of a local agent, which comes in two types:

1) Local Service Agent (LSA)

• UAE citizen or company owned by UAE citizens;
• Does not own a share in the company and does not participate in profit distribution;
• Performs administrative and representative functions – signs documents and interacts with government agencies on behalf of the foreign business;

2) Local Partner / Local Sponsor

• A local participant with a share (historically, at least 51% in an LLC);

The appointment of any type of agent in the Mainland depends on the specific form and type of activity of the company. A precise and limited list of situations is not defined by law, but in practice, the following can be distinguished:

• Certain types of professional licenses (consulting, specialist services, some clinics, studios, and service companies);
• Sole establishments / sole proprietors of non-GCC residents;
• Certain types of representative offices and liaison offices tied to interactions with government agencies.

So, now let's imagine what could go wrong in this regard:

First, some unscrupulous companies continue to sell Mainland business registration packages with an agent included, even in places where one is no longer required by law. By imposing a "default agent" on a client, intermediaries thereby increase their bill.

Secondly, although the LSA does not formally own a share, given their administrative authority as the contact person for the license and registries, and as the signatory of applications to the DED/DET, the Ministry of Economy, and the Migration Service, they have the power to block license renewals, address changes, and company closures. Therefore, if a conflict arises or relations deteriorate, they can effectively halt any formal action regarding the company. If the agent is a private individual, we must consider additional risks such as illness, relocation, death, family disputes, account seizures, or other legal complications involving the agent, and even the simple "disappeared and unresponsive" scenario.

Thirdly, a common situation involving verbal agreements may arise, where a largely formal, template agreement is concluded with the agent, without specifying the terms, responsibilities, and mechanisms for changing the agent at the owner's initiative or for transferring important documents or data, such as logins to the company's online accounts.

Finally, fourth, banks may have unnecessary questions about the agent and their actual role. Questions about actual control, broad powers without a share, nominee status, and other issues, if unanswered, can lead to account closure, increased scrutiny, and blocking of suspicious transactions.

Based on our extensive experience in the UAE, we recommend answering the following questions before signing an agreement with any agent:

1) Is an agent required by law? It's important to check the websites of the responsible government agencies, the current version of Companies Law, and the latest clarifications on branches and professional licenses.

2) Is it possible to choose a structure without a local agent? For example, would another mainland company structure also be suitable, or would registration in a suitable free zone with a subsequent mainland distribution agreement be appropriate, or perhaps a branch instead of a separate legal entity.

3) If a local agent is absolutely necessary, carefully spell out all the terms in the contract, including mechanisms for unilateral termination, agent changes, and other details.

Each situation is unique, so it's best to obtain an independent legal opinion before registering your company, both on the optimal structure for your business in general and on the need for an agent in particular. It often turns out that choosing the right structure and carefully working with a Local Agent can save you not only tens of thousands of dirhams annually, but also, most importantly, control over your business in the UAE. If you're planning to open a business in the UAE but want to avoid unnecessary expenses and potential risks when appointing a local agent, contact the international specialists at Antwort Law. We will answer all your questions effectively and reliably.

Lidia Ivanova

International lawyer
Antwort Law