Setting up a business in a foreign land can be complicated at the best of times. Add to that the additional complexities of setting up a foreign country and a task can feel like a bit of a minefield. However, this doesn’t appear to be putting off foreign entrepreneurs when it comes to owning a business in the United Arab Emirates. And nor should it. Although, getting a company up and running anywhere takes a lot of work, but provided you go in with the right knowledge and expertise, there’s no reason why any challenges cannot be overcome. One of such most common challenge is the issue of foreign ownership.
In the UAE, if one is setting up a company in the mainland jurisdiction, it is necessary to have a local sponsor for the business. A local sponsor is an Emirati or a UAE national who acts as a service agent for your business in the UAE and is usually a sleeper partner for the business. According to the law, majority of shares, i.e. 51% of shares in a company must be owned by a local sponsor while the remaining 49% of the shares is owned by the investor or the entrepreneur of the business. Usually the local service agent has no particular role or interest in the business but is appointed for the sole purpose of liaising with the government departments and authorities to obtain labor and immigration approvals, visas and complete other necessary paperwork for the company. The local service agent is to be paid an annual fee for his services.
Being a mandatory requirement, it’s a real, inevitable challenge for foreign investors to find the right local sponsor in Dubai, appropriate for their line of business.
Let us take a look at the types of local sponsor available in Dubai. The type you require will depend of the business activities you wish to undertake.
Under this, an Individual Emirati National sponsors your business and holds a 51% stake of a company. Individual sponsors must be of the UAE citizens over the age of 21 and can be male or female. Individual sponsors do not have to have experience running a business in your chosen field; however they should either be professionals, business owners or government employees. Here, in exchange for a set of annual fee, the local partner can hand over full power of attorney and therefore full control of the business and its day-to-day activities to the foreign investor.
This is somewhat similar to individual sponsorship except here the sponsor is a UAE national company. Again, the local sponsor would take on a 51% stake in the business. In both cases, the foreign investor will run the company with the local sponsor receiving a set fee or profit share agreement.
These sponsors are required when a professional such as a doctor, engineer, or an accountant start their business trading in the area of expertise. In this case, foreign entrepreneurs can apply for a professional services license and maintain 100% ownership of their business. They must, however, appoint a local service agent who will act as their representative in all administrative dealings with government departments. The local service agent does not hold a stake in the business and is instead paid an annual fee for their service.
Now, from the aforementioned advantages and types, you must have understood the importance of having a local sponsor for your business. But, there are few things one must consider before hiring a local sponsor in Dubai like,
Once you answer these questions and if the answers tilt towards having a sponsor, you shall go ahead with it. If not, you can set up your company in one of the free zones.
The thought of handing over the stakes in a business can set off alarm bells. However, in reality that is not what you are doing when working with a local sponsor in the UAE. Depending on the type of agreement you put in place, it is still possible to retain your profits. In fact, from a financial standpoint, it is not much different from operating in a free zone – you will get the same tax and repatriation benefits for example.
Business Setup Worldwide is here to help you get a local sponsor for your business. Our advisors are well versed with the laws in Dubai and can make this process simple and hassle-free for you. Contact us today- we’d be glad to help you out.