Commercial agents are protected by mandatory rules in the EU and UK and by nationality and registration rules in the Gulf. In Germany and France the agent is entitled on termination to an indemnity or compensation that cannot be excluded in advance; in the UAE agency activity is reserved to UAE nationals and wholly UAE-owned companies, with compensation rights on expiry or termination; in Saudi Arabia only Saudis may act as agents, but termination alone does not create a compensation right. Getting the structure right at the start avoids expensive exits.
EU and UK: indemnity or compensation
The EU Commercial Agents Directive requires Member States to give an agent either an indemnity or compensation for damage when the contract ends. The indemnity is capped at one year's remuneration averaged over the previous five years. The agent loses the claim if it does not notify the principal within one year of termination, and no payment is due where the agent defaulted, resigned without justification or assigned the contract. These protections cannot be contracted out of before the contract ends.
Germany implements the indemnity model: the Ausgleichsanspruch is capped at one year's commission on a five-year average, cannot be excluded in advance and must be claimed within one year. Great Britain applies compensation by default, unless the contract opts for an indemnity. Choosing a non-EU governing law does not necessarily avoid these rules: if the agent works in the EU, Rome I preserves mandatory EU law where all elements are in Member States, and courts apply overriding mandatory rules.123456
UAE and Saudi Arabia: who may be an agent and what happens on exit
Under the UAE Commercial Agencies Law, agency activity is limited to UAE national individuals and wholly UAE-owned companies, public legal persons and certain publicly owned companies, with a Cabinet exception for an international company acting for its own new products. The agent may claim compensation when the contract expires unless the parties agree otherwise, and a party harmed by termination may claim compensation. The law respects arbitration agreements, but arbitration is held in the UAE unless the parties agree otherwise.
In Saudi Arabia only Saudi nationals and wholly Saudi-owned companies may act as agents or distributors. According to a September 2026 law-firm review, termination alone does not give a statutory right to compensation, although damages are available for proven breach and harm, and a new Commercial Agencies Law is under discussion.78910
| Market | Who may be an agent | Termination payment | Source |
|---|---|---|---|
| EU (Germany, France) | No nationality rule | Indemnity capped at 1 year's average remuneration, or compensation; claim within 1 year | Directive 86/653/EEC Arts 17 to 19 |
| Germany | No nationality rule | Ausgleichsanspruch capped at 1 year (5-year average); no advance exclusion; claim within 1 year | § 89b HGB |
| Great Britain | No nationality rule | Compensation by default unless contract opts for indemnity | Commercial Agents Regulations 1993 reg 17 |
| United Arab Emirates | UAE nationals or wholly UAE-owned companies (exceptions) | Compensation on expiry unless agreed otherwise; on harmful termination | Federal Law No. 3 of 2022 Arts 2, 11 |
| Saudi Arabia | Saudi nationals or wholly Saudi-owned companies | No automatic compensation on termination (secondary source) | Clyde & Co, Sept 2026 |
Decisions to make
- Is the counterparty an agent (acting for you) or a buy-sell distributor?17The EU Directive protects self-employed commercial agents; Gulf laws cover agency and distribution registered with the ministry.
- In the UAE or Saudi Arabia, is the proposed agent eligible?710Agency activity is reserved to nationals and wholly national-owned companies.
- What is the exit cost, and can it be reduced by contract?48EU indemnity and compensation cannot be excluded before expiry; the UAE compensation on expiry can be varied by agreement.
- Where will agency disputes be heard?9UAE agency arbitration sits in the UAE unless the parties agree otherwise.
Documents usually needed
- Agency or distribution agreement stating territory, exclusivity, term and termination notice
- Ownership evidence showing the Gulf agent's eligibility
- Five-year commission records for calculating any EU indemnity
- Ministry registration certificate (UAE, Saudi Arabia)
- Termination notice and record of the date it was served
Common mistakes
- Assuming English or US governing law removes EU agent indemnity rights
- Appointing a foreign-owned company as a UAE or Saudi commercial agent
- Writing an indemnity waiver into an EU agency contract
- Ignoring the UAE agent's compensation right on expiry when the contract is silent
- Not recording when termination occurred, which starts the one-year claim period
Questions businesses ask
How much can a German agent claim on termination?
Up to one year's commission or remuneration based on the average of the last five years, and the claim must be made within one year after the contract ends.5
Can we terminate a Saudi distributor without paying compensation?
A September 2026 law-firm review states that termination alone does not create a statutory compensation right in Saudi Arabia, but damages are available for proven breach and harm. Confirm against the official law and any new law.10
Can we arbitrate a UAE agency dispute in London?
The law preserves arbitration agreements; arbitration takes place in the UAE unless the parties agree otherwise, so a foreign seat must be expressly agreed.9
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- France's implementation (Code de commerce Articles L134-1 onwards, including the customary level of indemnity) could not yet be checked on Legifrance.
- India, Singapore and US rules on agency and distribution termination were not researched; they generally depend on contract law.
- The Saudi points rely on a law-firm review; the Bureau of Experts text and any new Commercial Agencies Law could not yet be checked.
- The UAE transitional rules (Article 30) and the Cabinet exception for international companies were read but their application depends on facts.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 19 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
Under the EU Commercial Agents Directive the indemnity payable to an agent on termination may not exceed one year's remuneration calculated from the agent's average annual remuneration over the preceding five years, or over the period of the contract if shorter. Directive 86/653/EEC, Article 17(2). Member States choose between this indemnity model and a compensation-for-damage model (Article 17(3)); the indemnity does not prevent a claim for damages.
A commercial agent loses the indemnity or compensation under the Directive if it has not notified the principal within one year following termination that it intends to pursue the claim. Directive 86/653/EEC, Article 17(5).
The Directive's indemnity or compensation is not payable where the principal terminates for the agent's default justifying immediate termination, where the agent terminates without justification attributable to the principal or on grounds of age, infirmity or illness, or where the agent assigns the contract with the principal's agreement. Directive 86/653/EEC, Article 18.
The parties may not derogate from the Directive's indemnity and compensation rules to the detriment of the commercial agent before the agency contract expires. Directive 86/653/EEC, Article 19.
In Germany a commercial agent's compensation claim (Ausgleichsanspruch) is capped at one year's commission or remuneration calculated on the average of the last five years, cannot be excluded in advance and must be asserted within one year after the contract ends. § 89b(2) and (4) HGB; shorter contracts use the average over the actual period.
Under the Commercial Agents (Council Directive) Regulations 1993, a commercial agent is entitled to compensation rather than an indemnity on termination unless the agency contract provides otherwise. Regulation 17(2); extends to England, Wales and Scotland (Great Britain), not Northern Ireland.
Under the UAE Commercial Agencies Law, commercial agency activity is limited to UAE national individuals and companies wholly owned by UAE nationals, public legal persons and certain companies owned by public entities. Federal Law No. 3 of 2022, Article 2(1). The Cabinet may allow a non-UAE-owned international company to act as agent for its own new products where no agent exists (Article 2(2)); public joint-stock companies with at least 51% UAE national shareholding are covered by Article 2(3).
Article 31 brings the law into force six months after publication in the Official Gazette; the publication date was not shown in the text read, so the exact commencement date is not confirmed here.
Under the UAE Commercial Agencies Law an agent may claim compensation for damage when the contract expires by its term unless the parties agree otherwise, and a party harmed by termination may claim compensation. Federal Law No. 3 of 2022, Article 11. Early termination needs at least one year's notice or notice before half the term has elapsed, whichever is shorter, unless agreed otherwise (Article 10(1)(a)). Transitional rules in Article 30 apply to contracts in force when the law was issued.
Article 31 brings the law into force six months after publication in the Official Gazette; the publication date was not shown in the text read, so the exact commencement date is not confirmed here.
The UAE Commercial Agencies Law does not affect an agreement between agent and principal to refer disputes to arbitration, and the arbitration takes place inside the UAE unless the parties agree otherwise. Federal Law No. 3 of 2022, Article 26(1) and (2).
Article 31 brings the law into force six months after publication in the Official Gazette; the publication date was not shown in the text read, so the exact commencement date is not confirmed here.
In Saudi Arabia only Saudi nationals and wholly Saudi-owned companies may act as commercial agents or distributors, there is no statutory regime that awards compensation merely because an agency is terminated, and a new Commercial Agencies Law was described as under discussion in September 2026. Damages may still be awarded where breach and harm are proved; courts may consider the length of the relationship and the distributor's investment.
Secondary (law firm) source dated 9 September 2026; no decree number or date for a new law was given.
Questions on this topic
10 statements on commercial agency and distribution
