It can be quite complicated to set up a business yourself. There are many legalities that need to be discussed. The process gets even more difficult when it comes to starting a business in a different country. Dubai, being home to thousands number of expats, is also a land where international businessmen mostly choose to set up their companies. Foreign ownership is one of the most prevalent difficulties faced by expats as they plan to establish a company or business in Dubai. Every enterprise in the city’s mainland that comes under commercial or industrial licenses can only be 49% owned by an expatriate. A local sponsor in UAE must own the remaining 51% of the share. Now the main question which comes to your mind is who exactly is a local sponsor.
Who is a Local Sponsor?
A local sponsor or a local service agent is a person or corporate entity that complies with UAE company law and regulatory requirements for non-UAE or GCC nationals (foreign investors) who wish to invest and run and establish a company in Dubai, Abu Dhabi, Sharjah or anywhere in the UAE. As per the United Arab Emirates law in regard to the establishment of a mainland company, foreign investors are mandated to have a local resident, a UAE national, as a sponsor. Generally, the sponsor, in exchange for the fee, hands over the entire control of the business and the authority to run its day-to-day activities to the foreign investor with the help of a power of attorney. This also helps all earnings to be held in the name of the business and nothing in the name of the local partner.
Who Can be a Local Sponsor in Dubai?
There are different types of local business sponsorship available in UAE and they are as follows:
Corporate local sponsor
A corporation formed and licensed in Dubai must have a local sponsor to set up a business in Dubai. The UAE national, which is the sponsor, Corporate sponsor is the corporate firm that will hold 51% of the shares of a company with the remaining shares owned by individuals or a group of expats. This type of sponsor is common and very suitable for opening an LLC in Dubai. The corporate sponsors can be of any local or government authority, depending upon the nature of the business which the investors want to set up in Dubai.
Individual local sponsor
As the name suggests, this is when an individual Emirati national sponsors the business and holds a 51% stake of the company. Individual sponsors must be UAE citizens and can be male or female. It may not be necessary for the local sponsor to be involved in business activity or being a business owner. This type of sponsorship is suitable for opening a commercial business in Dubai. The individual sponsor should hold at least 51% of the total equity shares.
Local service agent as sponsor
The third type of local sponsor is service agent who is a local resident and he will be the representative of the company without holding any shares. If you are willing to open a professional business in Dubai then this form of local sponsorship is suitable.
Why Do Businesses Need a Local Sponsor?
A local partner helps the company pursue local trade within the UAE industry. Such LLCs which have a local sponsor are 100% tax-free, and the foreign investor has the option of liquidating 100% of their income.
The businesses also enjoy the benefit of opening unlimited divisions or branches across the country and pitching for a variety of private and government ventures that are not available to free zone firms or professional services firms that have no local sponsors. The foreign investors are also entitled to the investor status that allows them to obtain residence visas for themselves and their dependents.
Responsibilities of a Local Sponsor
Local sponsor is not only responsible to share the shares in the company. But instead, the local sponsor is also responsible for some important dealings as mentioned below:
- Cancellation of employees work visa
- Cancellation of the labor status for employees
- Closing the bank accounts
- To settle any outstanding debt if there is any
- The Local Service Agent can deal with the government officials and Ministries on behalf of the businesses and also facilitates the renewal process.
- Interpreting the business contracts for business registration that are in Arabic, a local authority is required to understand and interpret these documents and can sign on the behalf of their foreign business partner
Searching for a Local Sponsor in Dubai/ UAE
- Local Sponsors mostly do not help the business in their operations or any other sort. They simply are providing their service as a local representative and allowing the foreign entrepreneur to establish their business in the Mainland. And for this, they are paid a fixed annual fee or a certain profit share.
- There are plenty of high profile or even celebrity sponsors in UAE who claim to be different than others by providing network opportunities or providing a door for certain industries because of their status. This can be true but you have to be aware that you do not pay an extra amount for what you can easily get through other channels in quite less cost.
- Things can go wrong in certain cases. e.g. in case of death of sponsor, his shares will be passed to his heir and if they are not interested in being your local sponsor; you can be in big trouble and won’t be able to trade. You can avoid this by going for corporate sponsorship.
A local sponsor should be cross checked before hiring. Here are some points to remember:
- Have a complete check of the sponsors family background. A sponsor from a well reputed family in Dubai will be an advantage for the business as the UAE national most likely to have goodwill in the area.
- Going for a government employee as a local sponsor in Dubai will yield better benefit for company because of direct connection to government agencies.
- A foreign investor may have a sponsorship deed agreement verified before signing it.
- Be clear and precise on the fees or compensation to pay to the local sponsor as wells scope of sponsors services
- An investor may also seek an advice from a business consultant in Dubai about a local sponsor. A consultant can provide information on terms and conditions of having a local sponsor.
Finding a Reliable Local Sponsor in Dubai
There are many issues that arise because of the lack of time, not proper information and know-how or limitedresources to invest in the necessary research, evaluation and relationship building.
If you do not already know a reputable sponsor, there is another option available to foreign entrepreneurs looking to set up a company in mainland Dubai which is the option of corporate sponsorship.
While new businessmen may be under the impression that a local Dubai sponsor is the only way to set up a mainland company, another solution exists. Corporate sponsorship offers the same benefits as dealing with an individual sponsor while providing services that are designed to address the challenges that can arise with an individual sponsor.
Here are three core advantages to this approach:
- No interference from the sponsor: With corporate sponsorship, foreign businessmen maintain complete control over their business, despite the sponsor holding a narrow majority of shares (51% of shares). As a rule, corporate sponsors do not get involved in the day-to-day running of the company. This allows the business owners to continue to have full management of their staff, clients, and service offering.
- 100% of the financial benefits: Much like an individual sponsor, a corporate UAE mainland sponsor becomes a 51% shareholder in the company. However, one of the major benefits of this option is that you, as the business owner, retain 100% of the financial benefits.
- In-depth protective contracts: Side agreements are often a difficult part of the process. Luckily, this is another area in which corporate sponsorship may be advantageous. Many corporate sponsors offer detailed contracts drafted by first-tier legal counsel so that the rights of business owners and their shareholders are fully protected.
Importance of Selecting the Right Local Agent
In the UAE the market is thriving and flourishing. Businessmen from all over the globe are constantly trying to maximize current trends to the limit. It is extremely critical to have the right partner because of the local laws and restrictions in place for foreign companies and investors. You need the right associate to contribute positively to your investment, and secure your business and protect your rights in the UAE.
Your partner will help set up the business efficiently, counsel on local law enforcement and regulations as well as provide connections. This will assist you in making the business a success. Considering the diversity of the market makes it even more important to have a well-connected agent on the ground who adds real value to support your company. Selecting an appropriate sponsor for your business is key to launching a mainland enterprise. Explore the options out there. Be familiar with the risks and advantages. After all, the individual or corporation on that dotted line will be a partner in your business.
What kind of Business Need a Local Service Agent?
The following legal entities must have a service agent to support the company set up and operations in the UAE:
- The first being a Branch or division of a foreign company which can be either a representative office or a full foreign branch office. A representative office is a sales and marketing office and cannot commercially trade. A full foreign branch office holds the same activities provided by the mother company and can commercially trade.
- All Professional licenses need a local service agent who will not own any shares in a company but he or she will be the representative of the company.
- The third legal form is a civil company, which is a partnership with foreign and non-foreign investors owning 100% of the equity combined as individuals. The service agents used in these legal forms generally do not hold the equity or are involved in the company operations.The provision of service agent services is charge per annum on a lump sum basis.
Naturally, the thought of handing over a major chunk of shares in your business can cause the investor to have some pre apprehensions. However, in reality, that is not the case when it comes to working with a local sponsor in the UAE and Mainland Dubai. Depending on the type of agreement you put in place, it is still possible to retain your profits. In fact, from a financial standpoint, it is not much different from operating in a free zone – you will get the same tax and repatriation benefits for example. Of course, there is a lot to think about when entering into any business arrangement and hopefully this page has given you a clear idea of what’s involved and how to look for a suitable local sponsor for your company or business.
Why Choose Us?
Riz & Mona Consultancy are specialized in finding the reliable Local Sponsor in Dubai and across UAE. Do not hesitate to contact our expert on Whatsapp +971 54 582 1012 or send an email at Info@rizmona.com