Many businesses owned by foreign nationals and holding a professional license in the UAE are required to appoint a Local Service Agent, or LSA. This may either be a UAE national or a company wholly owned by UAE nationals acting as a representative of the foreign national to the government departments. The LSA does not hold ownership of the business and does not interfere in the working of day-to-day operations.
If you are thinking of terminating your agreement with a Local Service Agent, this guide will help you understand the legal processes, your rights, and the official procedures to follow.
What Is a Local Service Agent Agreement?
A Local Service Agent Agreement is a legal contract between a foreign entity (the principal) and a UAE national (the Local Service Agent).
The LSA performs administrative services such as securing trade licenses, visas, and government approvals for the principal but does not take ownership, management rights, or any profit shares.
The agreement is compulsory for certain setups such as sole establishments, civil companies, or branches of foreign companies that are operating in mainland UAE under a professional license according to the UAE Commercial Company Law and Civil Law.
This does not apply to companies in free zones or those that have commercial licenses, allowing full foreign ownership under new reforms.
For the agreement to be enforceable, it needs to be notarized by a licensed notary public duly authorized in Dubai and/or the relevant emirate.
Why Terminate a Local Service Agent Agreement?
Businesses may want to terminate the LSA agreement for different reasons:
- Legal Reforms: Federal Decree-Law No. 32 of 2021 confirmed that the LSA requirement for many branches of foreign companies had been eliminated, allowing for the DED registration directly as of June 1, 2021.
- Operational Changes: A company may wish to replace an LSA because of inefficiencies, internal disputes, or changes in business structure, such as converting from a branch into a locally owned, fully foreign-owned entity.
- Cost Reductions: The removal of LSA fees would cut operational costs in cases where the further services of the LSA are no longer required
- Contract Termination: The contract could naturally expire, or the business may otherwise have chosen to not renew it.
Legal Framework for Termination
Termination is determined according to the Federal Decree-Law No. 32 of 2021, and the specific terms of the LSA agreement. Procedural measures are provided by official sources such as the Ministry of Economy and DED, and important legal considerations are above.
- Mutual Consent: It is the easiest way to terminate a contract. In this case, both parties will have to agree on termination and subsequently have a notarized termination agreement.
- Unilateral Termination: If the LSA does not consent, the principal must adhere to the contract termination clauses, such as notice periods or compensation. Otherwise, if there is absence of such provision, the termination would have to comply with UAE civil law in order not to incur a breach of contract claim.
- Notarization: All termination documents, including settlement letters or agreements, must be notarized by a public notary Dubai for legal effectiveness.
- LSA Approvals Not Required: Formal consent is not legally necessary for termination by the LSA; however, the termination process should agree with the contractual terms to avoid any disputes.
- Strategic Activities: Some activities (like defense, security, oil & gas, etc.) still require LSA/local partner participation under Cabinet Decision No. 55 of 2021. Companies should confirm that with the Ministry of Economy.
Steps to Terminate a Local Service Agent Agreement
An LSA agreement termination action can be pursued through the following steps in the UAE:
- Review of the Agreement: The contract should be reviewed for termination provisions or conditions, notice periods, or any compensation required. Most contracts include conditions for notice periods or conditions under which the relationship can be terminated.
- Negotiate with the LSA: Inform the LSA of your intention to terminate and convince him to amicably resolve the issue. A letter from the LSA confirming that all fees have been cleared is going to be great.
- Termination agreement: Prepare an official agreement for termination detailing the applicable terms, including any last payments. This must be signed by both parties and notarized.
- Submit to authorities: Present the termination agreement to the Department of Economic Development (DED) and the Ministry of Economy for a change in your company’s registry. DED may require prior approval before amending the trade license to officially eliminate the LSA.
- Clear dues: Ensure that all fees that are owing to the LSA have been settled to avoid any legal issues.
- Update to Trade License: The DED will thereafter issue an updated trade license omitting any reference to the LSA upon approval.
Legal Issues to Consider
- Refunds for prepaid agent fees depend on what the agreement says.
- If the agent refuses to cooperate, you may need to go to court.
- If you are outside the UAE, you must give a power of attorney to someone who can represent you locally.
How Notary Public Dubai Can Help You
In the probable event of terminating your Local Service Agent Agreement, our lawyers will guide you throughout with respect to its drafting. Our team can assist you in:
- Reviewing your valid agreement
- Legal drafting of the termination contract
- Support in notarization along with translation
- Notifying all relevant authorities
- Debt recovery and dispute resolution
We ensure that the entire process is legally correct, clear, and hassle-free for you, so you can focus on your business goals.
Contact the expert drafting lawyers at Notary Public Dubai today. We will assist you in the entire termination process and keep your business compliant with UAE rules.
