The role of local sponsor for your business setup in Dubai
Dubai is the heart of the business world, and it is a fact considering the growth registered in the last two decades making this city the center of modern economic trade. It is not only an inflection point but also a trading hub of the world. As the competitive ranking of this city grows, starting a business becomes difficult for firm owners due to the local reforms and the quality of the business expectations.
An entrepreneur/ business owner can start a mainland, free zone or an offshore company. So to be part of the main commercial area, the business has to be part of the mainland. Local sponsorship in Dubai is compulsory if the owner is of foreign origin and wants to operate the business in Dubai mainland. To run an LLC company the business owner has to nominate a local service agent or a partner owning majority equity shareholding of 51% or more according to UAE Companies Law and civil law. A local service agent or a sponsor is an Emirati or UAE national, who acts as a sleeping partner of your company.
UAE legislation makes it mandatory for foreign business owners to have a local sponsor appointed for representative dealings with the ministries and the government for getting the paperwork done. Hence finding a suitable local partner becomes an inevitable challenge for the foreign investor.
Different types of sponsorship available to a Foreign Investor
Local Service Agent: When professionals such as Artists, Doctors or Engineers wish to set up their business for offering service, a local service agent is required to represent the company in all administrative matters. The local service agent, in this case, does not hold 51% of the business, but paid annually and is appointed for the sole purpose of liaising with the government departments and authorities to obtain visa, labor and immigration approvals and complete other necessary paperwork. The remuneration received by the local service agent is a matter of commercial agreement and also depends on the social standing of the family of the local service agent.
Following are the cases when a local service agent can be appointed:
1) For Branch office of foreign companies
2) For representative offices
3) Professional licenses.
Corporate Sponsorship: In simple term, this type of sponsorship happens when a UAE company owned by Emirati’s or UAE nationals hold 51% of the shares of an organization owned by a group or individuals of foreign origin. Here the P &L is shared by both the parties and the type of company setup is LLC, manufacturing unit or a trading company.
Individual Sponsorship: This is the most common form of sponsorship which is available in Dubai. An Emirati or a UAE national becomes a sponsor and may or may not be part of the operating business. An Emirati will hold 51% of the share of the firm and can hand over a power of attorney to the foreign partner for a fixed fee.
Companies often worry that about the contractual situation when they choose a local sponsor. What will happen if the local sponsor dies or changes his/her mind? Dealing with a business entity helps foreign owners to have confidence in the rigidity of the contractual agreement. From the corporate governance perspective, having a corporate/ business entity as a local partner have more benefits than an individual sponsor. A corporate nominee sponsorship is executed based on the specific terms of the firm.
At Commitbiz, we try to delve deeper into these challenges face by foreign investors and business owners and provide a strategic solution for the benefit of the organization. We believe in accuracy and smooth execution. Hence, if you would like to know further about local sponsorship in Dubai contact us today or get in touch with our team at [email protected]