Local Sponsor Requirement for Business Setup in Dubai

Dubai’s economy has grown significantly over the past few decades, attracting businesses from all over the world. The Emirate is home to numerous free zones, offering tax exemptions and 100% foreign ownership to companies. However, mainland companies in Dubai require a local sponsor, also known as a UAE national sponsor, to hold a minimum of 51% of the shares in the company.

The local sponsor plays a crucial role in facilitating the company’s registration and ensuring compliance with local laws and regulations. They act as a liaison between the company and government authorities, and their role is primarily limited to fulfilling legal requirements rather than being involved in the company’s day-to-day operations.

In this article, we will explain the legal requirements for business setup in Dubai and the importance of a local sponsor. We will provide guidance on how to choose a reliable and trustworthy local sponsor, considering factors such as reputation and experience. Additionally, we will outline the benefits of having a local sponsor and how they can help foreign investors navigate the local business landscape.

This article will serve as a comprehensive guide for those considering business setup in Dubai, outlining the requirements for a local sponsor and the benefits of having one. We will provide practical advice on how to choose a local sponsor and how they can support foreign investors in setting up and running a successful business in Dubai.

What is a Local Sponsor?

The local sponsor is required for all types of businesses registered in mainland Dubai, including limited liability companies, sole proprietorships, and partnerships. The local sponsor’s involvement is primarily limited to fulfilling legal requirements and providing support in matters such as obtaining permits and visas.

In contrast, free zone companies in Dubai do not require a local sponsor, and foreign investors can own 100% of the company’s shares. Free zone companies operate under different laws and regulations from mainland companies and are subject to the regulations of the respective free zone authorities.

Choosing a reliable and trustworthy local sponsor is crucial for foreign investors who wish to set up a business in Dubai. The local sponsor must have a good reputation in the business community and a thorough understanding of local laws and regulations. Additionally, it is recommended to seek the advice of a local business consultant or legal advisor to ensure compliance with local laws and regulations and the protection of the foreign investor’s rights.

In summary, a local sponsor is a mandatory requirement for business setup in mainland Dubai, and their role is primarily to comply with local laws and regulations and act as a liaison between the company and government authorities. Free zone companies, on the other hand, do not require a local sponsor and are subject to different regulations. Choosing a reliable and trustworthy local sponsor is crucial for the successful setup and operation of a business in Dubai.

The difference of Local Sponsor and Local Service Agent in Dubai

In Dubai, there are two terms that are commonly used in the context of company registration: local sponsor and local service agent. While they may sound similar, they refer to different roles and responsibilities.

A local sponsor is an Emirati national who holds a minimum of 51% of the shares in a mainland Dubai company. The local sponsor’s role is to comply with local laws and regulations, act as a liaison between the company and government authorities, and ensure that the company operates within the legal framework of Dubai. The local sponsor is involved in the company’s registration and licensing process and has the power to make decisions regarding the company’s ownership structure and operations.

On the other hand, a local service agent (LSA) is a UAE national or a company owned by UAE nationals that acts as a representative for a foreign company operating in Dubai. Unlike a local sponsor, the LSA does not have any ownership stake in the foreign company, and their role is limited to administrative tasks such as obtaining permits, visas, and other documents on behalf of the foreign company. The LSA is not involved in the company’s decision-making processes and does not have any power to control the company’s operations.

The key difference between a local sponsor and a local service agent is the level of involvement and control they have over the company. A local sponsor has a significant stake in the company and is involved in its decision-making processes, while an LSA acts as a representative and provides administrative support without having any control over the company’s operations.

While both a local sponsor and a local service agent are required for foreign companies operating in Dubai, they play different roles. A local sponsor holds a majority ownership stake in the company and has decision-making power, while a local service agent acts as a representative and provides administrative support.

Why is a Local Sponsor Required for Business Setup in Dubai?

To understand why a local sponsor is required for business setup in Dubai, it is essential to first understand the legal requirements for setting up a business in the UAE.

The UAE has a federal system of government, which means that each emirate has its own laws and regulations governing business setup. In Dubai, businesses can be set up either in mainland Dubai or in one of the many free zones located throughout the city.

In mainland Dubai, a local sponsor is required for all types of businesses, including limited liability companies, sole proprietorships, and partnerships. The local sponsor must be an Emirati national or a company owned by Emirati nationals and must hold a minimum of 51% of the shares in the company. This requirement is enshrined in the UAE Commercial Companies Law and is designed to ensure that local UAE citizens have a stake in the country’s economy.

The local sponsor’s role is to act as a liaison between the company and government authorities, ensure that the company operates within the legal framework of Dubai, and comply with local laws and regulations. The local sponsor is also responsible for obtaining visas and work permits for foreign employees and must be involved in the company’s registration and licensing process.

The purpose of the local sponsor requirement is to ensure that foreign businesses operating in Dubai comply with local laws and regulations and to provide local Emirati citizens with a stake in the country’s economy. By requiring a local sponsor, Dubai is ensuring that foreign businesses operating in the city are working in partnership with local Emirati citizens and contributing to the country’s economic growth.

In summary, a local sponsor is required for business setup in mainland Dubai to comply with local laws and regulations and to ensure that local Emirati citizens have a stake in the country’s economy. While free zone companies do not require a local sponsor, they operate under different laws and regulations and are subject to the regulations of the respective free zone authorities.

How to Choose a Local Sponsor?

Choosing the right local sponsor is an essential part of setting up a business in mainland Dubai. Here are some factors to consider when selecting a local sponsor and tips for finding a reliable and trustworthy one:

Reputation and track record: Look for a local sponsor with a good reputation and a track record of successfully sponsoring other businesses. Ask for references and conduct research on their background and history.

Compatibility: Choose a local sponsor whose interests align with your business goals and values. A sponsor who has experience in your industry or understands your business needs can be a valuable asset.

Trustworthiness and reliability: Look for a local sponsor who is trustworthy and reliable. This can be determined by their responsiveness, communication skills, and level of involvement in the company’s operations.

Fees and terms: Consider the fees and terms of the local sponsor’s agreement. Ensure that the fees are reasonable and that the terms of the agreement are clear and fair.

Language and cultural compatibility: Choose a local sponsor who speaks your language and understands your cultural background. This can facilitate communication and ensure that cultural differences do not impede the business relationship.

Professional advice: Seek professional advice from a reputable business consultancy or law firm to ensure that you understand the legal requirements of local sponsorship and to help you navigate the process of selecting a sponsor.

When choosing a local sponsor, it is important to conduct thorough research and due diligence. It can be helpful to seek advice from professionals who have experience in the local business environment.

In summary, choosing a reliable and trustworthy local sponsor is essential for the success of your business in Dubai. Consider factors such as reputation, compatibility, trustworthiness, fees and terms, language and cultural compatibility, and seek professional advice to ensure that you make an informed decision.

Benefits of Having a Local Sponsor

Having a local sponsor can bring numerous benefits to foreign investors looking to set up a business in Dubai. Here are some of the advantages of having a local sponsor:

Facilitation of business activities: A local sponsor can help facilitate business activities by providing guidance and support in navigating local laws and regulations. They can assist with obtaining licenses and permits, accessing local networks, and providing advice on business operations.

Compliance with local laws and regulations: Having a local sponsor ensures that your business complies with local laws and regulations. The sponsor is responsible for obtaining the necessary approvals and permits from government authorities and ensuring that your business operations are aligned with local laws and regulations.

Access to local knowledge and expertise: A local sponsor can provide access to local knowledge and expertise, such as market insights, customer preferences, and cultural norms. This can help foreign investors understand the local business environment and make informed business decisions.

Protection of business interests: A local sponsor can protect your business interests by ensuring that your intellectual property is protected, your contracts are properly drafted, and your business is operating in compliance with local laws and regulations.

Building trust and credibility: Having a local sponsor can help build trust and credibility with local customers, suppliers, and partners. The sponsor’s presence and involvement in the business can demonstrate a commitment to the local market and help establish strong relationships with local stakeholders.

Having a local sponsor can provide numerous benefits for foreign investors looking to set up a business in Dubai. The sponsor’s role in facilitating business activities, ensuring compliance with local laws and regulations, providing access to local knowledge and expertise, protecting business interests, and building trust and credibility can all contribute to the success of the business in the local market.

In conclusion, a local sponsor is an essential requirement for foreign investors looking to set up a business in mainland Dubai. The sponsor’s role in facilitating business activities, ensuring compliance with local laws and regulations, providing access to local knowledge and expertise, protecting business interests, and building trust and credibility can contribute significantly to the success of the business in the local market.

When choosing a local sponsor, it is crucial to consider factors such as reputation, compatibility, trustworthiness, fees and terms, language and cultural compatibility, and seek professional advice to ensure that you make an informed decision.

For those considering business setup in Dubai, it is recommended to conduct thorough research on the legal requirements, seek professional advice, and carefully evaluate potential local sponsors before making a decision.

In summary, having a local sponsor is a vital aspect of business setup in Dubai, and choosing the right sponsor can play a significant role in the success of your business in the local market.