The Strategic Guide to Franchise Agreement in the UAE
Because the UAE regulates franchising through the commercial agency regime rather than a franchise law, the decision that matters most is taken before the agreement is drafted.
There is no UAE franchise statute: no mandatory disclosure, no registration of offerings, no minimum terms. What shapes a franchise here is whether the arrangement is a registered commercial agency, since registration carries exclusivity, territorial commission and a statutory exit no notice clause can deliver. Also on trademarks, fee definitions and what the last day looks like.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
The UAE has no franchise statute. There is no disclosure document that must be given to a prospective franchisee before signing, no registration of franchise offerings, and no code setting minimum terms. A franchise agreement here is an ordinary contract, and it takes its legal character from the other bodies of law it touches: the federal commercial agencies legislation, trademark law, contract and commercial law, and — increasingly — tax.
That absence is not a licence to draft freely. It means the most important question about a UAE franchise is not in the agreement at all. It is whether the arrangement will be treated as a registered commercial agency, because that single point changes exclusivity, termination and dispute resolution more than anything the parties write.
The commercial agency question comes first
Under the federal commercial agencies regime, an arrangement by which a UAE party distributes or sells a foreign principal's goods or services in the country can be registered as a commercial agency with the register maintained by the Ministry of Economy. Registration is not a formality. It brings the relationship inside a protective framework whose effects the parties cannot simply contract out of.
A registered agency typically gives the local party exclusivity in the territory it covers, an entitlement to commission on sales made into that territory even where the agent did not make them, and the ability to prevent the principal's products entering the market through anyone else. Ending the relationship is subject to the statutory process rather than to the notice clause alone, and a principal that simply serves notice under the contract may find the registration, and therefore the agent's grip on the market, still in place.
Franchisors therefore make a deliberate decision at the outset: structure the arrangement so that it falls within the agency regime and accept those consequences, or structure it so that it does not, and document it accordingly. What does not work is signing an agreement without considering the question and discovering the answer years later, during a termination.
Related: Our franchise agreement services begin with exactly this structuring question.
The trademark licence is the asset being sold
What a franchisee is buying is permission to use a brand and a system. Trademarks in the UAE are registered federally through the Ministry of Economy, and a registration covers the whole country, free zones included. Three points follow for the agreement.
First, the marks the franchisee will actually use should be registered in the UAE, in the classes covering the goods and services the franchisee will supply, before the outlets open. Franchisors relying on a registration held only in their home country have no registered right to license here.
Second, the licence should be recorded so that it is effective against third parties, and the agreement should say who bears responsibility for making and maintaining that recordal.
Third, the franchisor's quality control provisions are not merely commercial. A trademark licensed without any control over the standard of the goods and services supplied under it is a weaker mark. The operations manual, the inspection rights and the audit rights are part of protecting the trademark, not corporate housekeeping.
Fees, and the tax that now attaches to them
Franchise economics in the UAE run through initial fees, ongoing royalties, marketing contributions and, often, supply margins on products the franchisee must buy from the franchisor or a nominated supplier. Each needs its own definition of the revenue it is calculated on, its own payment mechanics and its own audit right, because "gross sales" undefined is the most litigated phrase in franchising anywhere.
Two tax points now sit alongside the commercial terms. VAT applies at 5% under Federal Decree-Law No. 8 of 2017 as amended by Federal Decree-Law No. 18 of 2022, and a fee schedule that does not say whether figures are inclusive or exclusive produces an argument with the first invoice. Corporate tax under Federal Decree-Law No. 47 of 2022 applies to financial years starting on or after 1 June 2023, at 0% on taxable income up to AED 375,000 and 9% above, and the franchisee will want its royalty payments to be deductible. Where franchisor and franchisee are related parties, the pricing of the royalty has to be supportable on its own terms.
Where the franchisee sits
Since Federal Decree-Law No. 26 of 2020 took effect on 1 June 2021, the requirement that a UAE national hold 51% of a mainland company no longer applies to most activities, subject to a strategic-impact list. A foreign franchisor that wants to operate its own outlets, or hold a master franchise vehicle, can now generally do so through a wholly owned mainland company rather than through a local partner. This has changed how master franchise structures are built in the UAE more than any development in franchising itself.
Where the franchisee is a free zone entity, check what its licence actually permits. Free zone companies are generally licensed to operate within their zone and are not by that licence able to trade on the mainland; a network intended to cover Dubai as a whole needs mainland licensing for the mainland outlets. DIFC and ADGM are separate again — common-law jurisdictions with their own courts and regulators, useful as a home for a holding or master franchise entity and for the contract law governing the relationship, but not a substitute for the trade licences the outlets themselves require.
Staff belong to the franchisee
Franchise agreements impose detailed operating standards, including on training, appearance and service. The agreement should be explicit that outlet staff are employed by the franchisee, who is responsible for compliance with Federal Decree-Law No. 33 of 2021 on Employment Relations, which replaced Federal Law No. 8 of 1980. Franchisors that direct staffing decisions in practice while disclaiming responsibility on paper create a mismatch that helps nobody, and indemnities should be drafted with that risk in mind.
Term, termination and what happens afterwards
The post-termination provisions are where franchise agreements are tested. Set out clearly what happens on the last day: the marks come down and signage is removed, the manual and customer data are returned, remaining stock is dealt with in a defined way, and the premises lease — often the most valuable thing the franchisee holds — is either assigned to the franchisor or not, according to a mechanism agreed in advance rather than negotiated in a crisis.
Non-compete and non-solicitation restrictions after termination should be limited in scope, area and duration to what the franchisor genuinely needs to protect. Restrictions drafted more widely than the interest they protect invite challenge.
Choosing the forum
Cross-border franchise networks usually arbitrate, and a franchisor holding several years of UAE agreements should assume that some of those clauses need checking before they are rolled forward into a renewal or a new outlet. Two institutional changes explain why. The DIFC-LCIA was abolished by Dubai Decree No. 34 of 2021, its cases transferring to the Dubai International Arbitration Centre, while the DIFC itself is still available as a seat where the parties want it. Agreements that name ADCCAC for an Abu Dhabi network are naming what became arbitrateAD from 2024. Both sit under the same governing framework, Federal Law No. 6 of 2018 as amended in 2023. Where the relationship is a registered commercial agency, however, the statutory machinery for agency disputes may take precedence over the parties' chosen forum — a further reason to settle the agency question before anything else is drafted.
Where the parties want shared ownership of the local operating company rather than a pure licence, a joint venture agreement is often the better instrument, and the confidentiality and pre-contractual documents that precede either structure are dealt with in our contract drafting practice.
Related Services: Explore our franchise agreement work and our wider commercial contracts support.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
