Different Types of Sponsorship in UAE

The United Arab Emirates (UAE) has consistently maintained its status quo as a thriving location for business incorporation. Entrepreneurs enjoy innumerable benefits which include prime location, good infrastructure, and tax exemptions.

When it comes to companies being established by foreign investors in the UAE, there is a need for a local sponsor. So, before you realise your business idea, you must assess whether you need sponsorship in UAE.

Local Sponsor in UAE

The Commercial Companies Law, introduced in 2015, set out the detailed legal framework for limited liability companies to operate under. This law states that in a partnership between a UAE national and a foreign investor, the UAE national must hold 51 percent shares in the company. In simple terms, the law requires you to have a local sponsor for business setup in the UAE mainland.

A local sponsor is a UAE national or a UAE-based company owning 51 percent shares of the company, and providing legal and financial protection. A local sponsor typically has in-depth knowledge of the country’s laws, rules, and regulations and helps businesses in navigating them.

Does your Business Require Local Sponsorship in UAE?

In 2021, a major amendment to the law allowed 100 percent ownership across certain sectors for mainland company formation in UAE. While this eliminates the need for a local sponsor for some companies, others still require sponsorship. So, how do you decide whether you need a local sponsor for your company setup?

Some of the sectors where you don’t require a local sponsor include:

• Technology
• Healthcare
• Energy

You need a local sponsor if you wish to set up a business in sectors like:

• Oil and gas
• Medtail
• Banking
• Insurance

Types of Sponsorship in UAE

There are three types of sponsorship available in UAE:

1. Individual Sponsorship 
2. Corporate Sponsorship
3. Local Service Agent

Let us explore the features of each below.

Individual Sponsorship

This type of sponsorship involves a UAE citizen who holds the shares in your company. An individual local sponsor can be a UAE business owner, a government official, or any private citizen of UAE. 

Key Characteristics:

A local sponsor is ideal if you own a small or medium sized business in the UAE mainland. Here are some key considerations when appointing an individual local sponsor:

• The sponsor acts as a silent partner and does not interfere in the company’s day-to-day decision making process.
• The sponsor is compensated either through a fixed annual fee or through profit-sharing.
• The sponsor does not have control over the profits.

Corporate Sponsorship

A corporate sponsorship involves a UAE-based company acting as a sponsor. For businesses that require long-term legal and financial security, a corporate sponsorship can prove to be beneficial.

Key Characteristics:

Larger businesses often choose corporate sponsorship for the security that they provide. Here are some considerations to make when choosing a corporate sponsor:

• Like the individual sponsor, a corporate sponsor does not interfere with the day-to-day management of the company
• The sponsor is compensated through a fixed-fee that is agreed upon during contract negotiation with the foreign investor.
• The sponsor can also provide professional insight as they are experienced in industry operations.

Local Service Agent

A Local Service Agent is an Emirati citizen who acts as a representative for a professional service business. If your company provides services to customers - such as legal or financial practices - you will require a Local Service Agent.

Key Characteristics:

Local Service Agents help companies that do not require individual or corporate sponsors but need a UAE-based administrative official.

• The local agent does not interfere with the business.
• Unlike individual and corporate sponsors, a local service agent is only compensated through a fixed fee annually. 
• The local agent is responsible for helping you get approvals from the government.

How to select the right sponsorship in UAE?

Now that you are aware of the different types of sponsorship in UAE, it is only reasonable to ask what type of sponsorship would suit your business. To find a sponsor, you can rely on the following steps or contact the experienced business setup consultants of Commitbiz:

• Assess your business needs: Small and large corporations operate differently from a professional service. You must first understand the benefits of each sponsor and its relevance to the business.
• Conduct thorough background check: When making a choice, it is essential to do complete background verification of the sponsor. Additionally, it is important to have one who understands the business.
• Sign agreement: The agreement that you sign with your sponsor must detail every clause possible. You must sign only well-drafted agreements that protect your rights as a foreign owner.

How can Commitbiz help?

Choosing the right type of sponsorship in UAE for your business can be challenging. Business setup consultants at Commitbiz LLC bring years of experience and expertise in navigating the complexities of business incorporation in the UAE. We offer assistance in reaching the best possible sponsorship agreements. Contact us today!