Why are Local Sponsors Needed?

Every foreigner who wants to carry out industrial, commercial or trade activities within the United Arab Emirates needs a local sponsor as a mandatory requirement.

One of the reasons why business owners may find it useful to have a local sponsor is the lack of knowledge that they may have about local policies, standards and regulatory functions in the region. and to address this, the government has mandated the establishment of businesses by a local sponsor.

The advantage of this legislation is that once the right sponsor has been chosen, he / she will become a ready-to-use goodwill for start-up, and with Business Link Consultancies, the path to finding the most suitable sponsor tailored to your business needs couldn’t be simpler. .

As stated in the previous paragraphs, there are some exceptions, such as that professional services and branch and representative offices do not need a local sponsor. This is because they are 100% foreign-owned and established through a local service agent.

Local Sponsor / Sleeping Partner for Companies

Setting up a business in Dubai involves a number of rules and regulations. The Dubai business setup can be divided into two areas:

  • The Dubai Mainland Company
  • Foundation of a free zone company

For setting up a business in Dubai and operating a business in the mainland Dubai region, the involvement of a local sponsor is mandatory. When a foreign investor starts a business in Dubai, UAE law requires that a local sponsor be appointed to do representative business with the ministries and the government to handle the various formalities.

A local sponsor is a citizen of the UAE who acts as a service provider for your business in the United Arab Emirates and generally acts as a sleeping partner in your business.

As this is a mandatory requirement, finding a good local sponsor in Dubai that suits their industry is an unavoidable challenge for foreign investors.

As a rule, the local service agent has no particular role or interest in the business, but is only appointed for the purpose of contacting government departments and agencies to obtain work and immigration permits, visas and other necessary documents for the business. The local service agent is paid for his or her services with an annual fee.

why of local sponsorship in the UAE

The Emirates markets have become increasingly popular for foreign investment, Entrepreneurs have taken an interest in setting up businesses with business setup consultants in Dubai, we facilitate a quick and smooth transition to the market. With regard to the United Arab Emirates Commercial Company Law, which regulates the criteria for setting up a company, it is essential that all companies established in the United Arab Emirates have a national partner who acts as a local sponsor with 51% of the company’s shares while the remaining 49% is owned by the foreign company owner.

The term “local sponsor” refers to a sponsor who is a UAE citizen and family member. However, exceptions may apply to companies based in free trade zones, civil societies and others. However, business owners have the option of acquiring a local person representing the 51% or acquiring a company that acts as a 51% shareholder, with each company acting as a shareholder being 100% owned by a UAE citizen. In either case, the foreign investor will be the principal person in charge of the company, while the local sponsor will receive a fee or profit-sharing agreement. It is not uncommon for foreign investors and business owners to easily find a UAE citizen they know in the business world. Due to these similarities, we are certified and authorized to act as a corporate sponsor for those wishing to establish a business on the mainland in Dubai.

Local service agents are required in cases where doctors, engineers and accountants wish to start a business in their respective fields; in such cases, foreign investors are eligible to obtain a professional service license and to maintain their business at 100%, but a local service agent must be appointed to act as a representative responsible for all government-related administrative tasks. In such cases, the local service provider is charged an annual fee because it has no equity interest in the business.

Things to consider

To determine which sponsorship method is best suited to investors, it is essential to understand the features and benefits provided by each, individual sponsorship, local service agent and corporate sponsorship. When considering seeking local sponsorship, business owners should first determine the type of business activity the company is engaged in. Potential business owners interested in establishing a limited liability company, trading company, or manufacturing companies are eligible to apply for a business sponsorship. The processes and procedures for setting up the business are not without thorough research and analysis of the costs and benefits. There are many variables that need to be considered and weighed when looking for a sponsor. When considering seeking local sponsorship, business owners should first determine the type of business activity the company is engaged in. Common considerations that should be taken into account before beginning a sponsor search include:

  • Will the sponsor help the business? The answer to this question is usually a no, as the local sponsor simply provides a service and is involved through a pre-agreed profit-sharing while the expatriate takes care of the business.
  • Do I need a high profile sponsor?
  • What are the worst-case scenarios possible with each type of sponsor?
  • What are the main advantages? An obvious advantage in addition to having access to the local market, LLCs formed with a local sponsor are tax-exempt and the expatriate can repatriate 100% of his profits.