Dubai has been continually growing its image to be one of the top cities on the ease of starting a business. Because of economic growth prospects, multinational culture in the region, safety and business-friendly environment, business setup in Dubai is a promising proposition. The free zones are also a helping hand due to various incentives provided by the free zone authorities for individuals wanting to set up a business in Dubai. Dubai mainland is no less either. On the flip side, one of the most important challenges for an entrepreneur setting up a company in Dubai mainland is the element of the local sponsor owning 51% of the business. Local sponsorship is a compulsory condition for a person of foreign origin who wants to establish a business in the UAE mainland. This condition doesn’t apply to free zones.
Here are a few things you need to know about the local sponsor before appointing them in your business.
- Companies that wish to operate in the mainland are required to have a local sponsor in the UAE. The type of sponsorship available depends on the type of business to be conducted by the company and its legal structure.
- There are 3 types of sponsorship:
- Corporate Sponsorship: When a UAE national company owned by locals holds 51% of the share and liabilities of a company are owned by an individual or group of partners of foreign origin. In this case, the business is sponsored by a company, rather than an individual.
- Individual Sponsorship: When an Emirati national in his/her capacity becomes a sponsor, it is an individual sponsorship. It is not necessary for the sponsor to be operating a business in the same domain. The individual can be a government employee or a professional or a businessman.
- Local Service Agent: When a professional like a doctor, an engineer or an artisan – wants to set up their business by offering professional expertise then they require to appoint a local service agent. This agent will merely act as a representative of the company in all administrative dealings with government departments.
- A local sponsor is required to have a share of at least 51% in the company while the remaining 49% or less can be owned by the expat.
- When a company is set up in mainland Dubai and has a local sponsor, they are free to trade locally within the UAE market.
- Companies set up with a local partner also have an additional advantage, which is, they are able to open limitless branches throughout the UAE and pitch for a host of private and government projects that are not available to free zone or professional services companies without a local partner.
- When forming a business with a local partner, foreign entrepreneurs are given investor status in the UAE allowing them to obtain residence visas for themselves and their dependents.
- In certain cases, things may go wrong. For instance, in case of death of sponsor, his/her shares will be passed to his/her 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.
- Local Sponsors mostly do not help the business in their operations or any other sort. They are simply providing their service as a local representative and allowing a foreign entrepreneur establish their business in the mainland. And for this, they are paid a fixed annual fee or certain profit share.
- There are plenty of high-profile and even celebrity individuals in the UAE who offer a local sponsorship service. These individuals will usually try to stand out from the crowd by offering networking opportunities or due to their status. While these claims may well be true, they are hard to substantiate and you could end up paying a premium for the same service you would get anywhere else.
- Limited Liability Companies (LLCs) formed with a local partner are 100% tax-free and a foreign investor is able to repatriate 100% of their profits and income.
For any businessman, the thought of handing over the stakes in their business can set off alarm bells. However, that is not what they are doing in case of appointing a local sponsor. It usually depends on the type of agreement one place in front of the sponsor and still able to retain profits. From a financial point of view, it is not much different from operating in a free zone. If you are looking for a local sponsor so that you can kick-start your business in the UAE, we at Commitbiz handle all your local sponsor related requirements proficiently, so you can concentrate on your business growth! Contact us today for our services in the UAE.
About the Author
Prajakta Deshpande is pursuing MBA in Finance & Marketing. She loves to read books in her free time and is looking for a one-way route towards Hogwarts. She works for Commitbiz, a firm of management consultants helping entrepreneurs and firms set up their business in the UAE.