UAE provides best business opportunities in the entire gulf area and is 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 areas in the country. 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 while 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 wide range of business opportunities while free zones are present on 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.
But as mentioned above, the biggest hurdle in starting a company in the mainland UAE is finding a local sponsor. There are 3 types of local sponsorships in UAE. In corporate sponsorship, a UAE national company sponsors a foreign company and 51% shares of this foreign company goes 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 local service agent, a foreign professional expert will appoint a local service agent to represent his/her company. But these local service agents will not held 51% share of the company but instead they will be paid annually for their services.
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 sponsors in case of 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 gain 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 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.
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 in account that these verbal agreements have no significance in the court of law. If the sponsor turns away from his words during written agreement then the court will not accept any verbal agreement unless it is proved through electronic records or other reliable sources.
Choosing helpful local sponsor:
Local sponsors for 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 but 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 sponsor can arise from individual sponsorship. But these problems can easily be avoided only by selecting corporate sponsorship instead of individual sponsorship. Apart from that, you can also get several other benefits from corporate sponsorship like 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.