what is local sponsor dubai

All you Need to Know About Local Sponsorship in Dubai

With the UAE as one of the leading business destinations for foreign investors and entrepreneurs, it is essential to know about the rules and regulations of establishing a business in this country. One of the main factors that make foreign investors hesitate to set up a business in the UAE is partnering with a local sponsor. However, this is not the case if investors choose to operate their business in one of the UAE’s free zones. Free zones allow foreign investors to own their business 100%, while in the mainland, they have to partner with a local sponsor who has to own at least 51% of shares. This is except for a business operating under a Professional Services license that has the option to be 100% foreign-owned. There are many advantages to operating a business in a free zone, such as 100% business ownership, 100% repatriation of capital and profits, or 0% corporate or personal income tax (the differences with operating a business in the mainland are slight). However, a business established in a free zone can only be operated within the respective free zone and internationally. To have access to the whole UAE’s local market, a local sponsor (individual or corporate) or local agent is required to be appointed to the business. This is a rule for those companies that enjoy foreign investment.

 

Local Sponsor  

The local sponsor can be a UAE national individual or corporate and own at least 51% of its shares. However, this local sponsor can have no role in the day-to-day business operation if this has been agreed upon from the beginning. Also, the profits made from the business do not have to be shared with the same line. Usually, the local sponsor is paid an annual fee or minimal profit share. A local sponsor’s primary responsibility is to liaise with the government bodies on behalf of the company to ease the business process from the government perspective (immigration, visas, labor, etc.). This actually can benefit foreign investors from many aspects. However, because the local sponsor holds most shares, foreign investors should carefully select their sponsors.  

 

Types of Local Sponsorships 

Several types of sponsorships can partner with businesses established by a foreign investor:

  1. Individual sponsorship: In this case, an Emirati national will sponsor a business and hold 51% of its shares. These individuals must be above the age of 21 (male or female). In exchange for a set of annual fees, the local sponsor/partner will grant full operational powers to the foreign partner(s) or a third party on the memorandum of association. 
  2. Corporate sponsorship: In this case, all the criteria are the same as the individual sponsorship, but the partner can be a corporation.  

Both individual and corporate sponsorships are applicable for Limited Liability Companies.

  • Local service agent: This type of sponsorship is applicable if a professional such as a business consultant, artist, or accountant starts a company in their respective field of knowledge. In this case, the foreign partner should apply for a professional services license and have 100% ownership of their business. However, they must appoint a local service agent who will perform as the company representative in all the government sectors. The local service agent will not hold any share of the company, and instead, will receive an annual fee for its services.
  • A Local Service Agent is required for a Sole establishment, Civil company, and Branch of a foreign company.


 

Tips for choosing a local partner and business maintenance 

Finding a local partner to operate a business can be challenging, although it has its own benefits. Here are some simple tips for finding and clarifying the business operation conditions with a local sponsor:

  • Reviewing the local partner’s profile carefully: The work record of a local sponsor can be significantly helpful to realize if a sponsor meets the criteria for the intended business partnership.
  • Transparency: To avoid confusion and miscommunication, it is essential to be transparent about the business’s terms and conditions from the beginning.  
  • Including all the agreements in the Memorandum of Association in the LLC case or the Local Service Agent Contract in the case of a sole establishment: This will give both parties an obvious idea of their responsibilities, shares, and agreements in a legal form.
  • Preparing the right documents: Having the required documents ready (contacts, email, Power of Attorney, side agreements, etc.) is essential for protecting the business assets.

 

Advantages of Having a Local Sponsorship

   There are many advantages in partnering with a local sponsor for operating a business in the UAE:

  1. Benefiting constantly from the sponsor’s authority for the government procedures (labour, immigration, and all other UAE governmental authorities). This will significantly facilitate the business operation for the foreign investor and save their time. 
  2. Full business operation ownership is possible for foreign investors even if the local partner is a corporate partner and holds most shares, as explained above. 
  3. Drafting agreements and MoAs: In case of partnering with a local corporate, they can draft contracts and MoAs with detailed arrangements provided by law firms. This will assure full transparency and legal protection for both shareholders.   
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