The role of a local sponsor while setting up a business in Dubai
Words by Ankita Bhowmick in The Guides · Feb 21st, 2019
Setting up a business of your own can be quite tedious. There are a lot of legal aspects that need to be taken care of. When it comes to establishing a business in a foreign country, the process gets all the more complicated. Dubai, being home to a large number of expats is also a land that is largely chosen by foreign entrepreneurs to set up their businesses.
Foreign ownership is one of the most common challenges that expats face when they decide to set up a business in Dubai. Any business that falls under commercial or industrial licenses in the mainland of the city can only be 49% owned by an expat. The rest of the 51% of the stake must be owned by a local sponsor.
Who Is A Local Sponsor?
Having a local sponsor is a compulsory requirement that an expat needs to fulfill while setting up a business in the mainland of the city. He must be a UAE national and own 51% of the business. In most of the cases, however, the sponsor charges a fee and are not entitled to the company's profit share.
A UAE national, irrespective of their gender is eligible to be a local sponsor of a company. He should be above 21 years of age and should be either a professional, a business owner or a government employee.
Generally, the sponsor, in exchange for the fee, hands over the entire control of the business and the authority to run its day-to-day activities to the foreign investor with the help of a power of attorney. This also helps all earnings to be held in the name of the business and nothing in the name of the local partner.
Key Benefits Of A Local Sponsor
Having a local sponsor helps the company carry out trade locally within the UAE market. Those LLCs that have a local sponsor are 100% tax-free and the foreign investors have the option to repatriate 100% of their profits. The companies also enjoy the advantage of opening limitless branches throughout the country and pitch for a host of private and government projects that are not available to free zone companies or professional services companies that do not have a local sponsor.
Foreign investors are also entitled to the investor status that allows them to obtain residence visas for themselves and their dependents.
Industries That Require A Local Sponsor Regardless Of Location
If you are setting up in Dubai in the following industries, you will require a local sponsor:
1. Oil exploration and production
2. Security and military services
3. Banking, financing and insurance activities
4. Pilgrimage and Umrah services
5. Water and electricity provision
6. Fishing and related services
7. Post and telecoms services
8. Road and air transport
9. Printing and publishing
10. Commercial agency
11. Medical retail (including pharmacies)
12. Blood banks, quarantines, and venom/poison banks
Does A Local Sponsor Help The Business?
Generally, a local sponsor does not help the business in any way. Their only role is to allow foreign entrepreneurs to set up and run a business in the mainland of the city. A fee or in some cases, a fixed percentage of profit share that is pre-agreed upon is remunerated to the sponsors.
In most cases, the main responsibility of a local sponsor is to serve as your representative in all interactions with government and official entities. Alongside this crucial role, they can perform various other duties; such as interpreting Arabic business documents, handling the closure of bank accounts, and facilitating the cancellation of permits like work visas.