Establishing a business in Dubai is one of the most rewarding decisions for entrepreneurs from across the globe. The Emirate offers unmatched opportunities, world-class infrastructure, and a booming market for new entrepreneurs and businesses looking to expand in the Middle East.
In that regard, one key element that often determines the success of business setup in Dubai mainland is having a local sponsor. For some business activities, UAE law mandates foreign investors to partner with a UAE national or a locally owned company.
What is a Local Sponsor in Dubai?
A local sponsor is a UAE national or a company wholly owned by Emiratis, who can partner with foreign investors for Dubai mainland company formation. The UAE Commercial Companies Law requires foreign-owned businesses operating in the mainland to have a local sponsor, who holds at least 51 percent of the company’s shares.
Recent reforms under UAE company law have relaxed foreign ownership laws for businesses across strategic sectors. However, such industries still require businesses to have a local sponsor in UAE.
It needs to be mentioned that a local sponsor is also known as a local service agent, silent partner or beneficial owner.
Why is a Local Sponsor in Dubai Important?
When planning business setup in Dubai especially in the mainland, having a local sponsor makes it easier for you to launch the business and build good rapport with the government authorities. In addition to that, having a local sponsor in Dubai is crucial for the following reasons:
- Legal Compliance: In Dubai mainland, having a local sponsor ensures compliance with local laws for certain strategic business activities.
- Access to the Mainland: A local sponsor allows you to operate across Dubai without restrictions, unlike free zones.
- Networking Opportunities: Local sponsors can help in building ties with government authorities and people from the industry.
- Growth Potential: With sponsorship, the business can access new opportunities as in government contracts and public sector projects.
- Fewer Restrictions: Having a local sponsor in the mainland business ensures free trade without any geographical limitations.
Types of Local Sponsors in Dubai, UAE
For mainland company formation in UAE, entrepreneurs can choose from the following three types of local sponsors:
Individual Sponsor
An individual sponsor is an Emirati individual who holds 51 percent shares of the company. Such sponsors do not necessarily take part in the day-to-day operations of the business but hold a significant number of shares.
Corporate Sponsor
Corporate sponsor is a UAE corporation, either local or a government authority which holds maximum shares of the business. Corporate sponsorship is standard for Limited Liability Company Formation in Dubai. Many foreign investors opt to have a corporate sponsor as it is structured and professional.
Local Service Agent (LSA)
The local agent is a unique local sponsor in Dubai, who acts as the company’s representative without owning shares. Such local sponsorship services in Dubai are applicable for professional service companies such as consultancy firms. In this case, the agent does not hold equity but represents the company before government departments.
Choosing the right sponsorship type depends on the nature of the business and future goals when planning business setup in UAE.
Do You Need a Local Sponsor for Free Zones?
If you are planning to set up the business in one of Dubai’s many free zones, you do not need a local sponsor in Dubai. Free zones allow 100 percent foreign ownership, making them attractive to entrepreneurs who prefer complete control over the business.
However, free zone companies are restricted to operating within the zone and internationally. If you want to trade freely across the UAE market, mainland business setup with a corporate sponsor is necessitated.
Which Sectors Still Need a Local Sponsor in Dubai?
Many important and strategic business sectors need a local sponsor in Dubai. Let us look at some of the sectors that mandatorily need local sponsorship:
- Defence/military equipment
- Oil and gas
- Telecom
- Postal services
- Banking and finance
- Insurance
- Security services
- Medical retail (some niche sectors)
Finding a Local Sponsor in Dubai
Finding a reliable, trustworthy, and credible local sponsor in Dubai is a crucial task. A few tips to help find the best local sponsor are mentioned below:
Assess Experience
It is important to evaluate the experience and choose sponsors who are familiar with the industry. Such sponsors provide better insights and networking opportunities. For example - If a trading business is set up, choosing a sponsor who has earlier worked in the import-export sector, can save significant time and effort.
Check Reputation
A sponsor having a strong reputation and connections with government departments can add significant value to the company. Their goodwill can ease approvals, speed up documentation, and enhance the credibility of the brand in the market.
Transparency in Agreements
It must be ensured that the sponsorship contract clearly outlines responsibilities, rights, and fee structures. A transparent agreement helps protect interests regarding profit-sharing, management control, and dispute resolution.
Hire Professional Agency
Many entrepreneurs prefer to take help of local sponsorship services in Dubai such as Commitbiz. Our experts help connect with reliable individual or corporate sponsors and also provide legal support to safeguard the interests.
By conducting proper due diligence, a local sponsor can be secured for the business in Dubai, who supports long-term success.
Roles and Responsibilities of a Local Sponsor
A local sponsor plays an important role when it comes to business incorporation. Some of the roles and responsibilities include:
- Assistance with obtaining registration, licenses, and permits
- Building connections with top players in the market
- Sponsoring and cancelling of staff’s work visa
- Providing insights to boost business operations
- Offering legal aid
- Helps in clearing debts
Partner with Commitbiz
There is no denying that a local sponsor in Dubai plays an important role in helping foreign entrepreneurs establish a strong presence in the UAE mainland. Business setup experts from Commitbiz help find the right sponsors and take care of everything from compliance and business expansion to securing government tenders.
By leveraging our professional services, investors can ensure smooth operations and focus on growing the business in the lucrative market. Contact us today.
What is the difference between an individual and a corporate sponsor in Dubai?
An individual sponsor is a UAE national, while a corporate sponsor in Dubai is a company fully owned by Emiratis. Corporate sponsors are often preferred for a more streamlined and professional approach.
Can I maintain control of my company if a local sponsor holds 51 percent?
Yes, careful drafting of legal agreements can help retain management control, profit rights, and decision-making authority, even if the local sponsor for business in Dubai holds majority shares.
Can I change my local sponsor later?
Yes, you can switch sponsors, if needed. However, the process requires proper legal documentation and approval from relevant authorities.
Do free zone businesses need local sponsorship to trade on the mainland?
Yes, if a free zone company wishes to operate in the UAE mainland, it must appoint a local sponsor to comply with regulations.
Can a local sponsor in Dubai be held liable for the debts or legal issues of the sponsored business?
A local sponsor cannot be held liable for any legal or financial issue if they are not directly involved. So, it is essential that you sign contracts outlining the responsibilities of both parties in order to limit the risks.