Setting up a business in a foreign country is always a challenging process, and Dubai is no exception. With its growing economy and global appeal, the city has become a hub for international entrepreneurs and investors. However, establishing a business in Dubai’s mainland comes with one major stipulation — foreign investors must have a local sponsor to hold 51% of the business shares. This requirement is applicable for businesses holding commercial or industrial licenses in Dubai.
In this blog post, we will walk you through everything you need to know about local sponsors in Dubai, their role, types, benefits, and how to find a reliable sponsor for your business.
What is a Local Sponsor in Dubai?
A local sponsor (also known as a local service agent) is a UAE national or a corporate entity that complies with the UAE’s regulatory requirements for business ownership. Foreign investors setting up companies in the UAE mainland are required to partner with a local sponsor who will hold 51% of the shares. However, in most cases, the sponsor is not involved in the day-to-day operations of the business and hands over the control to the foreign partner through a legal agreement.
The local sponsor typically receives an annual fee in exchange for providing sponsorship services, allowing the foreign investor to manage the business operations independently.
Types of Local Sponsors in Dubai
There are three main types of local sponsors in the UAE:
1. Corporate Local Sponsor
In a corporate sponsorship, the local sponsor is a corporate entity (not an individual) that holds 51% of the shares of the company. This arrangement is commonly used for setting up a Limited Liability Company (LLC) in Dubai. The local sponsor could be a local business or a government authority, depending on the nature of your business.
2. Individual Local Sponsor
An individual local sponsor is an Emirati national (male or female) who holds a 51% stake in the company. This type of sponsorship is ideal for foreign investors who want to set up a commercial business in Dubai. The individual sponsor does not need to be involved in the business’s operations or be a business owner themselves.
3. Local Service Agent
A local service agent acts as a representative of the business without holding any shares. This type of sponsorship is typically required for professional businesses or service-based companies. In this case, the local service agent helps with paperwork and interactions with government departments but has no ownership rights in the company.
Why Do Businesses Need a Local Sponsor?
Having a local sponsor is essential for foreign investors who wish to conduct business in Dubai’s mainland. Here are some key reasons why businesses need a local sponsor:
- Legal Requirement: In accordance with UAE company laws, foreign investors are required to have a local sponsor for mainland businesses.
- Full Tax Benefits: Businesses with a local sponsor enjoy 100% tax-free benefits, with the foreign investor allowed to liquidate 100% of their profits.
- Expanded Market Reach: Having a local sponsor allows businesses to trade within the UAE, bid on government contracts, and open multiple branches across the country.
- Visa Benefits: A local sponsor allows the foreign investor to obtain investor status, enabling them to apply for residency visas for themselves and their family members.
Responsibilities of a Local Sponsor
While the local sponsor typically does not interfere with the business operations, they do have certain responsibilities. These include:
- Visa and Labor Card Processing: The local sponsor helps with the cancellation of employee visas and labor status when required.
- Bank Account Closures: The sponsor assists in closing bank accounts if necessary.
- Legal Obligations: In case of business disputes or legal issues, the sponsor may be responsible for handling certain government dealings.
- Interpreting Business Contracts: Local sponsors help in understanding and interpreting contracts written in Arabic, which may be a requirement for business registration.
Finding a Reliable Local Sponsor in Dubai
Finding the right local sponsor for your business can be challenging. Here are some key considerations to keep in mind:
- Background Check: Research the sponsor’s background to ensure they have a good reputation and a solid standing in the UAE business community.
- Government Employees: Opting for a government employee as a sponsor can be advantageous due to their direct connections with government authorities.
- Clear Agreements: Clearly define the terms of the sponsorship agreement, including the annual fee and the scope of services. It’s advisable to have these agreements verified by a legal expert.
- Consult a Business Consultant: Working with a business consultant in Dubai can simplify the process of finding a local sponsor. Consultants can provide expert advice, helping you understand the terms and conditions of sponsorship.
Why Corporate Sponsorship May Be a Better Option
For some investors, corporate sponsorship offers a more reliable and structured solution than dealing with an individual sponsor. Here are some advantages of corporate sponsorship:
- No Interference: Corporate sponsors typically do not get involved in the day-to-day operations of the business, allowing full management control to remain with the foreign investor.
- 100% Financial Benefits: Although the sponsor holds 51% of the shares, the business owner retains 100% of the financial benefits.
- Detailed Legal Contracts: Corporate sponsorships often come with more comprehensive contracts that protect the rights of the business owner and their shareholders.
Importance of Selecting the Right Local Sponsor
Choosing the right local sponsor is critical for your business’s success in Dubai. A reliable sponsor can help:
- Set up the business efficiently by offering guidance on local laws and regulations.
- Provide valuable connections that can benefit the business in the long run.
- Act as a trustworthy partner, ensuring the business remains compliant with UAE laws.
Which Businesses Require a Local Sponsor?
Certain types of businesses in Dubai are legally required to have a local service agent. These include:
- Branch or Division of a Foreign Company: This can either be a representative office or a full foreign branch office.
- Professional Licenses: Businesses holding a professional license need a local service agent to handle government processes but retain full ownership of the business.
- Civil Companies: These are partnerships where foreign and non-foreign investors own 100% of the equity.
Conclusion
In Dubai, having a local sponsor is a necessary step for foreign investors looking to establish a business in the mainland. A local sponsor not only fulfills the legal requirements but also helps businesses access the full benefits of operating in Dubai’s vibrant market. However, choosing the right local sponsor is crucial to ensuring long-term success and stability for your business.
If you are looking for a reliable local sponsor or corporate sponsorship, Smart Business Creation specializes in connecting foreign entrepreneurs with the right partners in Dubai. Contact us today for expert advice on setting up your business in the UAE.
For more information or assistance with finding the right local sponsor, Contact Us on WhatsApp or send an email to Info@smartbusinesscreation.com. Let us help you make the right choice for your business in Dubai!
