Local sponsor is an obligatory requirement if a foreign entrepreneur wishes to establish their business in the UAE mainland. The local partner owns an LLC's 51 percent Emirati share and may either be an individual or a 100 percent owned company.
An actively involved sponsor will fund their shareholding of 51 percent and also take their benefit share of 51 percent. They will also be engaged actively in decision-making and company management. A nominee sponsor does not finance the 51% shareholding but will serve as a silent partner and hold the 51% shareholding in confidence until the foreign party decides to sell, share or liquidate the company.
A side agreement is typically formed in such an arrangement where the candidate transfers management control of the company to the foreign party and elects the foreign party to earn its share of the income. A fixed annual fee is remunerated to the candidate sponsor. For all cases, the sponsor takes visa responsibility for labor and immigration.
So if an entrepreneur is planning to set up a business in Abu Dhabi, then it is essential to know about the procedures and types of sponsors. The company can be set up in UAE through Individual Sponsorship, Corporate sponsorship or local Service Agent.
Types of Sponsors
This is when individual UAE sponsors own a 51 percent share of the company. The sponsor must be above 21 years old and can be a male or female and may or may not run business in the same field. But this individual sponsor must be either a professional or an employee of the UAE government or an entrepreneur. But, there is yet another important option in this type of sponsorship. The sponsor will grant the foreign entrepreneur a power of attorney and hence the full control of the company and request a fixed annual sponsor fee.
This is equivalent to individual sponsorship, but here sponsor is the UAE national company. And they keep 51 percent share of your company.
Local Service Agent
A local service agent is compulsory when professionals establish their business in UAE offering their expert professional service. The agent will represent the firm in all the activities and will communicate on behalf of the company with government officials and ministries. Instead of giving them 51 percent of your company, they are paid with a fixed annual payment. It can vary depending on their activities or services.
The Need for Local Sponsor in Abu Dhabi
Well, if you wish to carry out commercial, industrial or trading activities in the UAE mainland, then you need to have a local sponsor. However, there are some exceptions. Professional services businesses do not need local sponsorship, and neither do branch offices nor representative offices.
Branch offices and representative offices of existing foreign companies maybe 100 percent foreign-owned and are established through a local service agent. The branch and representative offices of existing international companies can be 100% foreign-owned and are set up through a local services agent. It is crucial to note that neither of these business types is standalone. They don't have a specific legal identity and are treated as extensions of their foreign parent company.
Although branch offices and representative offices are similar in several respects, there is one specific distinction: branch offices may carry out their business in commercial activities in the mainland of the UAE and make profits, but they only have to trade in events similar to that of their parents. On the other hand, A representative office is not allowed to make profits in the UAE. It must limit its business activities to marketing and promoting its foreign parent's products and services. Another way to maintain 100 percent ownership of your company is to locate your company in one of the free zones of the UAE.
Although free zones offer many financial and other benefits, they do not allow you to trade efficiently in
the local UAE market and therefore are not ideal for entrepreneurs wishing to develop a business in the mainland.
Things to Focus Before Hiring a Local Sponsor
- Check if the locality of the investor in Dubai to make signatures or process govt formalities easier.
- Perform complete research of the sponsors' family background. A sponsor from a well-reputed family will be beneficial for the business as the UAE nationalist most likely to have goodwill in the area.
- Choosing a government employee as a local sponsor will yield better benefits for the company because of direct relation to government authorities.
- A foreign investor can have a verified sponsorship deed agreement before signing it.
- Be transparent and consistent about the fees or reward to be paid to the local sponsor
- An investor may also seek a bit of advice from a business consultant in Dubai about a local sponsor. A consultant can provide information on the terms and conditions of having a local sponsor.
Challenges Faced While Selecting a Local Sponsor
- Getting to know about your local sponsor before a deal.
- Hidden costs in the sponsorship fee.
- Throughout the UAE, contracts, in addition to written or electronic documents, may take the form of a verbal agreement.
- A local sponsor's premature death or early retirement will cause an abundance of problems.
- Finding the right local UAE mainland sponsor
Advantages of Working With A Local Sponsor
Aside from the key benefit of being able to trade directly within the UAE market, partnering with a local partner has a range of other advantages.
- 100% reliable assistance
- Support and guidance on registration, licensing and office set-up
- Saves time and money
- Proper work progress
- No suspensions and extra cost
LLCs established with a local partner are 100% tax-free, and the foreign investor can repatriate 100% of their profits should they wish to. Companies set up with a local partner often have an added benefit of being able to open limitless branches in the UAE and apply for a variety of private and government ventures that are not accessible without a local partner to free zone or professional services businesses. Finally, foreign entrepreneurs are granted investor status in the UAE when they start a company in Dubai with a local partner, enabling them to get residency visas for themselves and their dependents.
Duties of Local Sponsor in Abu Dhabi
Local sponsor is responsible for some significant dealings, as mentioned below:
- Cancellation of employees working visa
- Cancellation of the labour status for employees
- Closing bank accounts
- To settle any outstanding debt (if necessary)
- To deal with 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 behalf of their foreign business partner
Best Way to Get A Local Sponsor
The best way to find a local sponsor in Abu Dhabi is through connections and local websites which will do the needful for you.
If you want to start a Big business, you will need a local sponsor in Abu Dhabi and the charges depending on the company and the sponsor you choose; annual sponsorship starts at AED 25000. For a small business, you can go for the service agent and the charges will be yearly from AED 5000 to AED 10000. All agreements between you and the sponsor must be registered in Dubai courts.
If you don't have proper connections, don't worry!!
There are plenty of consulting firms that will help you to find the best local sponsor.
For further information on how to change a sponsor or how to remove partners and so on, then you can reach out to experts at Commitbiz. We provide assistance to find the correct and reliable local sponsor in Abu Dhabi or anywhere in UAE. We are here to make your work simpler. Take a step ahead to contact us. We are happy to help you!