Franchising sits close to the **commercial agency** regime, and that proximity is the whole risk. A franchise arrangement registered as a commercial agency acquires statutory exclusivity, constrained termination and compensation rights that the franchise agreement cannot displace. Decide the structure before drafting.
Franchising
Granting or taking a franchise in the UAE
Franchising sits close to the commercial agency regime, and that proximity is the whole risk. A franchise arrangement registered as a commercial agency acquires statutory exclusivity, constrained termination and compensation rights that the franchise agreement cannot displace. Decide the structure before drafting.
| Item | Detail |
|---|---|
| Franchisor | [NAME], incorporated in [COUNTRY] |
| Franchisee | [NAME], licence [NUMBER] |
| Registered as a commercial agency? | [N — and neither party shall register] |
| Brand and system | [DESCRIBE] |
| Territory | [DETAIL] |
| Exclusivity | [Exclusive / non-exclusive] |
| Outlets | [NUMBER] — [development schedule] |
| Term | [5] years, renewable |
| Initial fee | [CURRENCY] [AMOUNT] |
| Continuing fee | [PERCENTAGE] of gross revenue |
| Marketing contribution | [PERCENTAGE] |
| Trade marks registered in the UAE by the Franchisor? | [Y/N] — must be Y before signing |
1. Structure First
| Option | What it is | Exit |
|---|---|---|
| Unregistered franchise | Contractual licence of brand and system | Per the contract — the workable choice |
| Registered commercial agency | Statutory regime attaches | Very difficult — compensation, constrained termination |
| Master franchise | Franchisee sub-franchises within the territory | Complex — sub-franchisee rights survive |
| Development agreement | Right to open a number of outlets to a schedule | Per the contract |
| Joint venture | Franchisor takes equity in the local operator | Shareholder exit provisions |
| Company-owned | Franchisor operates directly through its own entity | Full control, full cost |
1.1Neither party shall register this arrangement as a commercial agency without the other’s written consent, and an application to do so is an event of default.
1.2A franchisee may ask for registration, presenting it as formalising the relationship. It is not — it converts a contractual arrangement into a statutory one the franchisor may be unable to exit. Understand what is being asked before agreeing.
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A franchise registered as a commercial agency acquires statutory exclusivity, constrained termination and compensation rights that the agreement cannot displace. Prohibit registration expressly and make an application to register an event of default. A franchisee may present registration as merely formalising the relationship — it is not.
The UAE is first to file. A franchisor granting rights in marks it has not registered here is granting very little, and a franchisee should verify ownership rather than assume it. This is the first item on both sides of the pre-signing checklist for good reason.
Anywhere, not just in the UAE, and require assignment of anything registered in breach. A franchisee holding local registrations or domains has decisive leverage at renewal and can obstruct a successor after termination.
Whether it includes VAT, delivery income, gift cards, discounts and third-party platform sales determines the continuing fee. It is the most argued clause in any franchise agreement and the cheapest to settle at drafting.
Fees attract VAT where the franchisor is registered, and the franchisee needs a valid tax invoice to recover input tax. Where the franchisor is non-resident, the reverse charge may apply to the franchisee — the most commonly missed item in cross-border franchising.
The franchisee employs its own staff, obtains permits, pays through WPS and accrues gratuity. A franchisor that directs individual employees, sets their terms or disciplines them starts to look like an employer. Set standards, not employment terms.
A former outlet still carrying the livery damages the brand and confuses customers for months. Make the obligation specific, time-limited, and backed by a right to enter and remove at the franchisee’s cost. A general obligation to "cease use" achieves nothing at the point it is needed.
A UAE company may only carry on what its licence covers, and premises must be approved for the use. A franchisee unable to operate lawfully is the franchisor’s problem as much as its own.
Product labelling, price display inclusive of VAT, and consumer refund rights all apply to the franchisee’s operation. Allocate responsibility for compliance and for any regulatory approval cost expressly.
Exclusivity without a development schedule gives a franchisee a locked territory with no obligation to build it. Conversion to non-exclusive on failure is usually more useful and more exercisable than termination.
Where customer data flows between franchisee and franchisor, identify which data protection regime applies to each and put a processing or sharing agreement in place. Cross-border flows to a foreign franchisor need a transfer basis.
Franchisees contribute and expect to see it spent on marketing. An unaccounted fund is among the most common sources of franchise disputes. Commit to applying it for its purpose and to accounting on request.
Sub-franchisees may have rights that survive termination of the master franchise, leaving the franchisor with obligations to parties it never contracted with. Take advice specifically on this before granting master rights.
Where there is any question whether the arrangement engages the commercial agency regime, a defective termination can strengthen the franchisee’s position substantially. Check the registration position before giving notice, not after.
Reflects UAE law current as of {{DATE OF USE}}. Federal Law 3 of 2022 on Regulating Commercial Agencies, trade mark and consumer protection requirements, VAT treatment of cross-border fees and data protection regimes all change — take UAE legal advice before granting or taking a franchise, and specifically on whether the arrangement could be registrable as an agency.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, corporate secretary, or accountant as relevant) before you rely on it.