UAE provides best business opportunities in the entire gulf region. It is rightly known as a business hub in the whole world due to its tax free business opportunities along with the presence of free zones and offshore business jurisdictions in the country. The two major business providing areas are free zones and UAE mainland.
There are several differences between mainland and free zones in the UAE. Many foreign entrepreneurs opt for free zones instead of setting up their business in the mainland UAE mainly due to 100% ownership of their business in UAE free zones. On the other hand, they have to give 51% shares of their company to a local sponsor while setting up a business in the UAE mainland.
But there are several benefits of setting up a business in mainland UAE where the investors can get lot of space and a wide range of business opportunities. On contrary, free zones are present in small areas and most of these free zones only allow specific business opportunities. Another benefit of mainland UAE is that businesses in mainland UAE can freely do business with other businesses of mainland UAE while this opportunity is not available in UAE free zones.
Types of Local Sponsors in UAE
But as mentioned above, the biggest hurdle in starting a company in the mainland UAE is finding a local sponsor. Due to services provided by local sponsors in UAE, there is immense importance for these individuals or entities. There are 3 types of local sponsorships in UAE.
- Incorporate sponsorship, a UAE national company sponsors a foreign company and 51% shares of this foreign company go to the UAE national company.
- In individual sponsorship, an Emirati citizen (govt. employee, businessman or professional) can sponsor a foreign company by holding 51% shares of that company.
- In case of a professional license, a foreign professional expert will appoint a local service agent to represent his/her company. But these local service agents will not hold 51% share of the company. Instead, they will be paid annually for their services.
Points to note for Local Sponsors
Here below, we are mentioning the challenges that a foreign company or professional can face while finding a perfect UAE local sponsor and also how to overcome these challenges.
Death or Retirement of Local Sponsor:
This is an expected scenario where a local sponsor may die or get retirement from his govt. job. In this case, the sponsorship can shift to his/her heirs and there is a possibility that they may not be interested in resuming their role of sponsors. This is a really critical situation but it can be avoided in two ways.
The first thing is to use corporate sponsorship instead of individual sponsorship. But if you opt for individual sponsorship then things should be settled in the agreement with the sponsor that tackles these circumstances. These include the name of the next 51% shareholder and his/her assurance to abide by the terms of sponsorship. These measures can help save lot of time and money and avoid stress in later stages.
Complete Information of Sponsor:
It is important to acquire complete information about your sponsor before signing the agreement with him/her. For this purpose, you should spend some time before selection of your local sponsor. Few foreign entrepreneurs are in a hustle to establish a company in mainland UAE and avoid getting complete information about their potential sponsor. But this may put their business at a risk in the coming time if their future local sponsor cheats them in company matters or claims complete ownership of the company. A better option is to contact an experienced consultancy firm that can provide a reliable local sponsor.
Written Legal Contract:
Sometimes, verbal agreements are made in UAE initially instead of written legal agreements on the basis of trust. But it should be taken into account that these verbal agreements have no significance in the court of law. If the sponsor turns away from his words during a written agreement then the court will not accept any verbal agreement unless it is proved through electronic records or other dependable sources.
Choosing helpful local sponsor:
Local sponsors in UAE mainland are usually called sleeping partners because they will not assist you in your business affairs on most of the occasions. Though they may be professionals or businessmen most of the time they are unrelated to the type of business they are sponsoring.
It means that the foreign investors have to pay them according to the agreement without taking any benefit from them except using them as their representatives. If you want to get some real support from an experienced sponsor then you have to pay him/her really high.
But one important point to be noted is that it is a false assumption that these local sponsors are not liable for their sponsored company. In fact, they have to bear 51% liability of the company along with 51% share.
Apart from the above-mentioned challenges, several other problems like delaying in getting signature from sponsors and disappearance of a sponsor can arise from individual sponsorship. But these problems can easily be avoided only by selecting corporate sponsorship instead of individual sponsorship.
You can also get several other benefits through corporate sponsorship. Few of these include there will be no involvement of corporate in day to day running of the company, the foreign entrepreneur will be provided with retention of 100% financial benefits and a detailed legal contract drafted by the corporate sponsorship.
The simplest way to get your desirable local sponsor in Dubai and UAE according to requirement of your business is by contacting reliable consultancy firm like RIZ & MONA Consultancy. We are available on our WhatsApp # 971-54-5821012.