Business

Importance of Local Sponsorship for Business Setup in Dubai

Importance of Local Sponsorship for Business Setup in Dubai

Historically, if you wanted to set up your business in Mainland Dubai without any hassle or complications, you needed a local sponsor who owned 51% of your business. Now, the requirement of a local sponsor is only limited to certain strategic industries, including road transport, air transport, medical retail, telecom services, post services, banking, security, oil and gas. A local sponsor can be anyone, ranging from an individual to a corporate firm, a local business, or a service agent.

Role of Local Sponsor

A local sponsor, also referred to as the local partner of your business in Dubai, helps you sail through the complicated legal framework of Dubai and acts as a link between you and the local regulatory authorities. A local sponsor is still necessary in some business activities, such as banking, oil, security, gas, insurance, medical retail, and transport. It is a legal necessity and a convenience for any foreign investor who wants to set up their business in these sectors in Dubai. Basically, the role of a local sponsor in Dubai is to represent you in front of the government authorities and deal with any issues related to the business, if any. Apart from this, the local sponsor can also help you in doing some diverse tasks, such as translating Arabic documents into your understandable language or handling the revocation of work permits.

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Benefits of having a local sponsorship for your business

Apart from dealing with the government officials and regulatory bodies of Dubai, there are some other key benefits associated with local sponsorship to set up your business in Dubai:

Foreign investors are granted the status of investors, which helps them easily procure residence visas for themselves and their dependents.

LLCs with local sponsorship are granted a 100% exemption from paying taxes, and investors can repatriate 100% of their profits.

If your company has a local sponsorship, it grants you the freedom to open an infinite number of branches of your company throughout the United Arab Emirates.

Having a local sponsor for your business helps you build a local network that can turn into your future customers or partners.

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What should you check before finalising a local sponsor?

The first and foremost thing that you need to check is that he or she should be a UAE national.

You should inquire about the background of the local sponsor. If the local sponsor belongs to a well-reputed family, it will be very useful for your business as you can make use of his or her connections and network to expand your trade.

One of the very important things is to check the qualifications of the local sponsor so that, in the future, there should not be any issue concerning the language barrier.

Try to go for a government employee as your local sponsor. Having a government employee as the sponsor will benefit your business, as he or she must have strong connections within government bodies.

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Conclusion

Before 2021, the process of setting up a business by a foreign investor was incomplete without having a local sponsor for their business, who owned 51% of the business. However, owing to the 2021 amendment to the Commercial Companies Law of the UAE, a foreign investor can now own 100% of the businesses in Mainland Dubai relating to various commercial activities such as food, beverages, tourism, education, technology, wholesale, retail, and professional services. Apart from these commercial activities, some strategic industries, such as oil, transport, gas, banking, and insurance, still have the legal requirement of having a local sponsor who will own 51% of the business. More than a prerequisite by law, a local sponsor is an important element that links a foreign investor and local regulatory bodies. It helps you drive through the complicated legal process of business setup efficiently and effectively. The local sponsor has the upper hand with 51% of the company’s shares, but they do not interfere with the business’s day-to-day activities. They usually charge a fixed amount of fees or a specified percentage of business profit and then hand over all control to run the business to a foreign investor through a power of attorney.

FAQ’s

  1. Is it necessary to get local sponsorship to set up a business in Dubai?

    Historically, it was necessary for foreign investors who wanted to set up their businesses in Mainland Dubai. However, after the new amendment introduced in June 2021, a foreign investor can own 100% of their business without local sponsorship. This law has some exceptions, such as in the oil, gas, transport, banking, telecom and insurance sectors.

  2. Who is a local sponsor?

    Local sponsors are also known as emirate partners or local partners. They are the nominee shareholders and sleeping partners who hold at least 51% of the shares of the company according to the UAE Commercial Companies Law. A local sponsor should be a citizen of the UAE.

  3. How does a local sponsor help you in the business?

    Dubai, being an attractive destination for foreign investors, has a complicated legal process for setting up a business involving several legal obligations. Having a local sponsor for your business helps you sail through the complicated legal process effectively.

  4. Can you set up a business in Dubai without a local sponsor?

    Yes, you can set up your business in Dubai without a local sponsor in 1061 out of the 2300 activities listed by the Department of Economic Development, such as education, manufacturing, technology, tourism, hospitality services, professional services, food and beverages.

  5. Can a foreign investor own 100% of the business in Mainland Dubai?

    After the amendment passed in 2021, a foreign investor can now own 100% of their business in Mainland Dubai.

  6. Does the new law, which provides 100% foreign ownership to businesses in the Dubai Mainland, apply to every sector of business?

    No, the law granting 100% ownership to foreign investors is not applicable to various sectors such as oil, transport, gas, banking, post services, telecom services, medical retail, insurance and security services. 

  7. What is Corporate local sponsorship to set up your business in Dubai?

    If a local corporate firm or a local business agrees to sponsor your business in Dubai, it is termed a corporate local sponsorship.

  8. What is an Individual local sponsorship to set up your business in Dubai?

    If a single individual, not a corporate firm or a service agent, agrees to sponsor your business in Dubai, it is termed an Individual local sponsorship.

  9. Is it mandatory to share your business's profits with the local sponsor?

    No, sharing your business's profits with the local sponsor is not mandatory. Instead of the profits, you can pay them a fixed fee.

  10. What is the duration of local sponsorship?

    The duration of the local sponsorship for your Dubai business is 5 years.

  11. When can a local sponsorship be terminated?

    The local sponsorship can be terminated at the will of either party at any time.

  12. What is the cost of obtaining a local sponsorship to set up your business in Dubai?

    You have to pay no specified cost to set up your business in Dubai. The cost varies from sponsor to sponsor and depends on the business type you want to start.

  13. Does the local sponsor interfere in the day-to-day activities of the business?

    No, the local sponsor doesn’t interfere with or participate in the business's day-to-day activities.

  14. Can you own 100% of your business in mainland Dubai?

    Owing to the June 2021 amendment to the Commercial Companies Law of the UAE, you can now own 100% of the business in Mainland Dubai without any local sponsorship. The amendment providing 100% ownership to foreign investors applies to more than 1000 business activities (1061 out of 2300) as listed by the Department of Economic Development, such as education, tourism services, food and beverages, technology, professional services, healthcare, wholesale, and retail.

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