Dubai was an oil-based economy. However, in the last two decades, Dubai has transformed into a business hub. The state-of-the-art technology, world-class amenities, and business-friendly policies of the government have attracted foreign investment. Moreover, the geographic location also has contributed to Dubai being a business hub. Over 90% of Dubai’s population are foreigners. The Dubai government has made it easy for foreigners to set up a business whether small or big. However, it is important to adhere to the rules and regulations of setting up a business. A business can either be set in the mainland or a Free Zone. Why need local sponsor?, A business set up in Free Zone enjoys 100% ownership and profit repatriation. But, can trade with the UAE local market only with the help of a local sponsor. To register a company in Dubai mainland, it was mandatory to appoint a local sponsor. This local sponsor gets 51% of the companies to share except in case of business under professional service license. This has changed with the introduction of the new FDI law.
Who is a local Sponsor?
A local sponsor is a term referred to as a sleeping partner in the mainland companies with foreign investment. He holds 51% stakes in the company. Besides, he must be a resident with a valid Dubai passport. Moreover, a sponsor does not take part in the decisions of the business and is paid an annual fee.
Types of local Sponsors
- Corporate local sponsor: A local corporate company established and registered in Dubai can act as a local sponsor for a foreign company willing to set up in Dubai. The local sponsor holds 51% of the stakes and the rest 49% goes to the foreign company. This type is most suitable for an LLC formation.
- Individual local sponsor: A local resident can be a sponsor. He may or may not take part in the business activities. This is suitable for commercial or industrial setups. The sponsor should hold at least 51% stakes in the company.
- Local service agent as a sponsor: A service agent who is a local resident can be a sponsor. This is most suited for professional businesses.
Advantages of a local sponsor to register a company
- Getting access to local market and expertise
- LLC with a local sponsor is fully tax-free and the foreign investor can repatriate 100% of profits
- Can open many branches in the UAE
- Get hold of government projects
Factors to be considered to appoint a local sponsor
Though appointing a local sponsor is advantageous, but before hiring one, the company has to cross-check the details about the sponsor. The following points have to be verified:
- Firstly, check whether he is a resident of Dubai
- Secondly, the family background of the sponsor has to be verified
- Qualification status of the sponsor
- A sponsorship contract has to be signed and the fees to be paid have to be mentioned. The agreement should clearly state the local sponsor’s role in decision making, working of the company, and also the status at the time of closure of the business or contract due to any reason.
- A government employee as a local sponsor will yield higher benefits.
Necessity of a local sponsor to register a company in Dubai
Hiring a local sponsor was mandatory. However, according to the new FDI Law, the government of UAE now permits 100% ownership in certain sectors. This move is to attract foreign investment and to diversify the economy. The government has made two lists of sectors i.e. positive list and a negative list. The sectors under the positive list can enjoy 100% foreign ownership, whereas the negative list includes the sectors in which local sponsor has to be appointed. The sectors included in the negative list are:
- Oil exploration and production
- The Investigation, security, military
- Banking and financing activities
- Water and electricity services
- Fishing related services
- Road and air transport
- Printing and publishing
- Commercial agency
- Medical retail
The companies investing in the negative list need to hire a local sponsor. A local sponsor helps to get access to the local market and provides the expertise in dealing with the local market and following the government regulations. Finding a local sponsor is not difficult. However, while appointing a local sponsor, the company has to be very careful. A local sponsor must be trust worthy. We at BEYOND VIEW help you to understand your activity and find out whether you are eligible for 100% ownership. We also assist you in finding a trust worthy local sponsor.