Local Service Agent: What is it and do you need one?
18th March 2022 (Updated throughout where indicated.)
Owning your business 100% is a big thing in the UAE. It's shiny and new. Until recently, foreign investors were restricted by ownership limitations on their businesses. However, the UAE has been undergoing huge economic reforms in recent years to increase the country's attractiveness for Foreign Direct Investment (FDI). This has included opening up certain sectors to 100% foreign investment. BUT, to take advantage of this increased ownership opportunity in Abu Dhabi, foreign investors need a local service agent. What is a local service agent, and where do you get one?
Updated 6th September 2023
New foreign branches in Abu Dhabi no longer require a service agent. This is because foreign branches can now only apply for business activities which allow 100% foreign ownership; and, as has always been the case, the activities must also match the activities of the overseas parent company.
What is a Local Service Agent?
A service agent can be either an Emirati national or an Emirati business (a business which is 100%-owned by Emirati nationals) which is aligned with the foreign-owned business for the purpose of government registrations and liaisons. The service agent assists to make the set up of the business and the ongoing government interactions as smooth as possible, based upon their experience and know-how, which is unlikely to be familiar to a foreign investor or business.
Can you get good and bad service agents?
Yes. Keep reading...
A good local service agent
A good service agent will be extremely knowledgeable of government requirements, how and where to submit applications, changes to regulations and/or processes, and corporate documents.
They will often know of upcoming changes or requirements first, via their wide networks across service centers, government departments, translation houses and typing centers.
A good local service agent can save your business time, hassle and money because they know exactly what they are doing and can plan the process upfront. Having a good service agent, who knows their way around the government departments and can demonstrate up-to-date and regular day-to-day PRO experience (Public Relations Officer a.k.a. Government Liaison Officer) is worth their weight in gold.
A bad local service agent
A novice service agent can waste time going between government departments trying to establish what needs to be done, what documents are required and in what order the process needs happen. Money can also get wasted making unnecessary applications. A service agent who only acts occasionally, or in a specific sector, may not be able to provide the know-how your business needs. See an example in the image below.
Reputation is everything. A foreign business wants to know that their service agent is working with their best interests at heart. How will the service agent look after the foreign company's private documentation whilst they have it? If you have ever walked close to a government department or typing center and looked into the windows of cars parked close by, you might be surprised (actually, shocked) to see all manner of corporate and employee documents strewn over the seats.
Local Service Agent - Business Tip
Additionally, it's worth understanding, and defining if possible, response times. This means, if you are requesting an action by your service agent, how quickly are you expecting it to be completed versus how quickly they are likely to complete it.
The relationship between foreign business investor and a service agent is like a marriage. It starts out well with promises and excited expectations, but can go horribly wrong when those expectations aren't met and communications go sour.
What is a Local Service Agent Agreement (LSA)
The relationship between the foreign company and the service agent is documented in a Local Service Agent Agreement, which is notarized and is legally binding. It stipulates the obligations of both parties to avoid any misunderstanding, as well as the fees the foreign investor will pay to the service agent - usually a fixed annual fee.
The LSA clarifies that the service agent does not have any ownership in the foreign investor's business, is not an employee of the business, doesn't get involved with the operations, and is not entitled to any share of the profits. This is the peace of mind that foreign investors are usually most interested in.
Furthermore, the LSA should clearly state the term of the agreement and how it can be terminated. It should be noted, that even if the term of the agreement expires, this DO NOT mean the end of the agreement. For the agreement to be totally terminated, it is necessary for both parties to sign a termination agreement, which also needs to be notarized. This would either coincide with the foreign investor engaging a replacement service agent or perhaps closing their business.
Can you change your local service agent?
YES! The good news is you can change your local service agent.
The first step is to thoroughly check through your existing LSA and identify and understand what your termination terms are. Providing, there are no nasties - these could be things relating to exclusivity or exit penalties - the process to make the change should be relatively straight forward. If you have a difficult situation or an uncooperative existing service agent, it may be necessary to seek legal advice and assistance, and we can connect you with lawyers who are experienced in handling such cases.
If your existing local service agent relationship is draining your time and resources, it may make sense to look at changing. Keep reading...
Where do you get a good service agent?
If you are reading this article, then you have already come to the right place. Gateway Group has been providing our clients with this service since we opened our doors.
We have had heard too many stories of organizations having difficult relationships with their service agents. We think this is totally unnecessary. We are all in this together. Business should be fun without unnecessary distractions and hassle. So our intention is to take away the distractions and the hassle which can be involved with government-related transactions, namely setting up businesses, applying for special permits, organizing visas and ultimately staying compliant. This means, your time is freed up to focus on doing what you business does - afterall, that is why you are wanting to do business in Abu Dhabi. We like long term relationships, so we keep them by doing what we say we will do, thus making our clients' lives easier.
Updated 31st September 2023
Whats the difference between the business licenses in Abu Dhabi?
Discover Gateway Group's complete guides to the Abu Dhabi business licenses. Written in an easy-to-understand style, our business license guides provide all the information you need to know before setting up your business. Find out about the legal structure and ownership, premises requirements, who can apply, the requirements, visas, exit strategy and so much more. Our current selection of guides includes:
If you found this blog post informative and helpful,
please show your appreciation by clicking the ❤️ at the bottom of this page.
Thank you.
Written by Jenny Hunt
Founder, Gateway Group, Abu Dhabi & Dubai, United Arab Emirates
FORBES' Top 100 Most Influential Women in the Middle East
