Dubai is a dreamland for investors and entrepreneurs. If you are a foreign national looking to establish a business in Dubai, you will be welcomed by numerous opportunities. However, Dubai has some strict rules and regulations. One such element is local sponsors. Now you might be wondering who a local sponsor is and why you need one. Every foreign investor will have this moment of confusion. In this article, we will discuss the role of local sponsors and the risks and rewards that accompany it.
What Is Local Sponsorship in Dubai Mainland?
Certain businesses require a local sponsor for Company registration in Dubai. To set up a business in mainland Dubai, you need a local sponsor who is a UAE national, specifically an Emirati citizen who owns at least 51% of your business. Typically, foreign investors own only 49% of the mainland companies. Nowadays, many business categories allow 100% foreign ownership. However, certain companies in the field of banking, oil, transport, gas, insurance, and security require local sponsorship. A local sponsor need not be an individual; it can also be a UAE-owned company. The local sponsor can act as an intermediary between you and the government. Having local support in Dubai is beneficial when it comes to handling the government documents, especially those written in the Arabic language.
There are mainly three types of sponsorship in the UAE
Individual Sponsorship – In this type of sponsorship model, a local UAE citizen becomes the shareholder of your company. They should own at least 51% of the shares.
Corporate Sponsorship – A UAE-based company serves as the local sponsor here. This is ideal, usually for larger businesses.
Local Service Agent – A local service agent is a citizen of the UAE who acts as the sponsor, but without acquiring shares, they are paid a fixed annual fee.
Rewards of Having a Local Sponsor
Having a local sponsor comes with numerous benefits.
Expansion without any restrictions
Local sponsorship enables companies to operate anywhere in Dubai and the UAE without any restrictions. If you plan to expand, you can open multiple branches throughout the UAE if your company has a local sponsor. Similarly, you can sell directly within the UAE markets without any hassle.
Access to Government Projects
Most government tenders are open to mainland companies, and many of these are available to businesses with Emirati ownership. A local sponsor can help you engage with local partners and stakeholders as well as bid for government contracts.
Reputation
Partnership with an Emirate Sponsor adds legitimacy to the business. For industries that rely on networking and local relationships, this is a major advantage.
Networking
A local sponsor can help your business connect with local clients. This can be crucial for the success of a company in the UAE.
Local Knowledge
A local sponsor will have more knowledge than a foreign investor about the regional rules and regulations. As a foreigner, you might be unfamiliar with the business culture in the UAE. A local sponsor can help you bypass these cultural nuances, and they can also help to interact smoothly with the government agencies. Regarding a business, it is important to get permits, licenses, and renewals.
Banking Support
Banks often prefer businesses with local sponsors. This can help with easy business account approvals. A local sponsor will also help you to connect with the right professionals, including a tax agent in Dubai, to ensure that your financial matters are handled precisely.
Risks of Local Sponsorship
Loss of control
When the local sponsor holds 51% of the share, there arises risks of complications with profit sharing, limitations in decision making, and there can also arise disagreements in management.
Financial Dependence
If the sponsor becomes unavailable, unresponsive, or uncooperative, complications may arise in renewing the licenses, expanding the business, or making any decisions related to the company. This is why selecting a sponsor is not just a casual choice, but a very important one.
Sponsorship cost
There can be an annual fee for sponsorship, which varies according to the company’s size, type, and reputation of the sponsor.
How to Reduce Risks
To minimize the risk associated with local sponsorship, investors should first draft a detailed agreement that clearly states the ownership rights, operational authority, profit distribution, sponsor responsibilities, and exit mechanisms. This should be done under the guidance of a legal advisor. Choosing corporate sponsorship instead of individual sponsorship is a more effective strategy. This is especially beneficial for larger businesses. Finally, make sure that you work alongside a business consultant who is experienced in the field. They will handle everything from documentation to filing taxes and ensure smooth operations.
Conclusion
Local sponsorship is critical for businesses with foreign investment in Dubai, especially when it comes to Business setup company Dubai and other business activities. Local sponsorship can be a crucial aspect, there are several rewards of having a local sponsorship such as the freedom to expand, market access, credibility, and local support. On the other hand, there are also certain risks associated with local sponsorship such as loss of control and dependency. Choosing the right sponsor is a crucial decision that can affect the functioning and success of your company.
