Dubai is undoubtedly a global market in which businesses from all over the globe prosper and have an opportunity to earn large sum of profits.It has famously become the business hub in the world due to its successful business ventures in the past decade. Foreign companies enjoy benefits of operating in a 100 % tax free Zones in Dubai. Dubai emphasizes on diverse business prospects and hence the foreign companies have grown immaculately.
The Local sponsor service is a very important aspect for a business to sustain in the Dubai market. There are a lot of benefits of having Local sponsor service to any foreign company intending to set up business in Dubai mainland. Apart from the Department of Economic Development Mainland license, which is essential to set up business in the Free Zone areas, a UAE sponsor is also a requirement to continue any business in the city.
The local sponsor usually holds 51% of the share and foreign company hold 49% of the share. Apart from that local sponsor has the right to entrust the operations and profit sharing in the name of the foreign company through power of attorney. The local sponsor role is to help the foreign company with trade licenses, visas and other required paperwork.
What is a local sponsor?
A Local sponsor is a term generally used in the UAE to refer to sleeping partners or a nominee shareholders in mainland companies with foreign investment. A sponsor has to be an UAE national with a family membership card. In order to operate any business in the Dubai Mainland area the foreign investors requires a local sponsor to be appointed and this is mandatory in the UAE.
Nominee Partner in LLCs:
A minimum of 51% local equity is a must in order to start a company with limited liability in mainland which is a non-offshore company in a free zone according to the UAE Companies Law and UAE Civil Law. The profit distribution from this company can be decided and mutually agreed among the concerned parties despite the fact that foreign equity in such a company does not exceed 49%.
Also the operational powers of the company can be granted to the foreign partner(s) or a third party completely on the memorandum of association. Only companies owned by UAE nationals or local UAE nationals may be considered for being nominee partner/ sleeping partner and has to be paid a lump sum amount yearly.
Local Service Agent:
All foreign companies, may it be brand or civil companies are required to have a local service agent to comply with the regulations. The local service agents do not have any share in the company and are not necessarily involved in the operations of the company. However they are paid a chunk of fee per yearly as a normal sponsorship fee. In Dubai if you intend to form a company it always comes with various rules and regulations. Business setup in Dubai can be divided into two sectors:
- The Dubai Mainland Company
- Free Zone Company Formation
Setting up a company in Dubai and for operating a business in the Dubai Mainland area requires a local sponsor and is mandatory. When a foreign company intends to invest in a new venture in Dubai, the UAE legislation states that a local sponsor should be appointed for representative dealings with the ministries and the government for taking care of various paperwork formalities.
A local sponsor is a UAE national, who acts as your service agent for your business in the UAE and acts as a sleeping partner of a company.
It is a mandatory requirement; it’s a real, inevitable challenge for foreign investors to find the right local sponsor in Dubai who can be also being useful for their business.
The local service agent has no particular role in the business. Although, they are required for liaison work with the government departments and authorities to obtain labor and immigration approvals, visas and complete other necessary paperwork for the company. The local service agent is to be paid yearly fee for their services.
Normal Market Practices:
The normal practice in UAE as far as local sponsor is concerned are that they do not have any interference in the day to day activities of the company and all the powers related to operations are with the Managing director of the company. However, the local sponsors also hold some powers from signing on Immigration and labour related affairs. Normally a local sponsor can sponsor many companies and has no limitations; some UAE nationals have sponsored hundred of companies under their belt.
The Misconduct in the Market:
Generally, it is very rare for UAE local sponsor to misconduct with their foreign partners. There are some cases in which there some who misconducts with the partners in the market. Some of these misconducts are as follow:
No Access to Sponsor:
Many business owners generally do not have direct access to the local sponsors and have to access them through PROs or consultants or lawyers. In such cases the client or foreign client and PROs or consultants or lawyers relationship is very critical.
Busy and unavailable sponsor:
As the sponsor does not have any limitations as to how many companies he can sponsor, sometimes a sponsor has busy schedules and when required is not available. It can be a bit a hassle to get hold of your sponsor.
A sponsor is required for e-signature card for applying for work permits as most of the company owners are not registered with the labor department and the corporate sleeping partner wipes out the above mentioned issues.
Sponsorship Fee Calculator:
Most of the local sponsor service provider offers highly professional accounting services on a reasonable price in UAE, so you can try sponsor ship fee calculator for getting the right price on your local sponsorship services. Apart from that they also provide corporate nominee sponsorship for reasonable rates.
Corporate Nominee Sponsorship:
In UAE, local partner sponsorship can be utilized by all limited liability companies. The sponsor should not be an individual entity instead a corporate entity.
Important benefits of the corporate nominee sponsorship acting as an entity is the difference of personal relationship with traditional sponsorship to agreement based on new and improved system. That nominee sponsorship acting as an entity is built with a board of directors and holds power of attorney to act on behalf of the Company. Hence, from the corporate governance perspective and transparency factors, this gives various benefits for a foreign party.
Finding a local sponsor in the appropriate business is a challenge for most of foreign investors in Dubai, as it is a mandatory requirement. It is not a must to share profits with local sponsor but it is a must to pay them a fee yearly. Having said that, the rules still remains the same that they also do not have any say in the operations of the company. But getting an educated local sponsor is important for any start up in Dubai mainland, these local sponsor have to reliable as well for company formation.
Necessity of Local Sponsor in UAE:
It is very compulsory to have a local sponsorship in UAE and is mandatory by law of the land to have a sponsor by any foreign company to invest in any activity in the country and it is equally important even when you want to cease business in the UAE. For foreign investors they are required by the law to have sponsor to set up business in Dubai mainland. You will need help of local sponsor for employment as well as this sponsor will take care of all the dealings with local authorities for you.
If you intend to set a freezone company in Dubai, local sponsor is again appointed compulsory as the in UAE local sponsor is necessary for representative dealing with various Ministries and the Government of UAE for most of the paper works.
As the local sponsor is mandatory requirement by law in UAE, the sponsor acts as an agent of the business and is a big challenge to find appropriate local sponsor for the business you intend to start. You can take guidance from your local company formation specialist for detailed information about your local sponsor.
Why setup a business with a local sponsor in Dubai:
It is compulsory for all foreign companies, limited liability companies or LLC, sole proprietors and foreign branches or civil companies to commence business and activities with an Emirati citizen by the Government of Dubai and this local citizen act as an agent or representative on behalf of foreign investors to the Dubai government.
If you are lucky and you get a good local sponsor they can help you to connect with other networks and resources which will help foreign business to expand. If they are reliable they can help you to achieve company goals and vision toward ultimate success.
Local partner may well appreciate the corporate philosophy and value proposition of your investment and if you can find a well educated local nominee who can participate actively in your venture they can provide you with good understanding and value to ensure success of your company.
Moreover, these local partners can always make or break your company’s progress. A well connected and educated sponsor if you can make a deal with them on a reasonable price, it may well prove critical for a fresh venture.
Business Sponsorship: Local v/s Corporate Sponsor for your LLC Business Setup in Dubai
If we look in the past the legislation in UAE always allowed part ownership to foreign businessmen, but now it has changed drastically as the legislation now offers 100% ownership to expatriate. Although there is a debate in the Gulf States to remove the sponsorship system but the legal system in the Gulf works rather slowly. There are ample business opportunities and cannot wait for the sponsorship system to change.
The company formation advisor can assist you to capture current opportunities by arranging a silent and trust worthy partners. They can be both local and corporate sponsors in Dubai. The local company formation advisers have a very stringent procedure to access local partners. They recommend credible sponsor who have good track record in the past of non interference and providing support to the business of expats. They can also advise you how to change your sponsor if you are not satisfied with your current sponsor.
Type of Sponsors for your Business Setup in Dubai:
There are two types of sponsor for your business:
· Local Sponsor for your Mainland Business Setup
· Corporate Sponsor for your Mainland Business Setup
A Corporate Sponsor for Mainland Company in Dubai is a legal business body which is completely owned by Emeriti national, unlike the local sponsor in Dubai. You can keep powers to manage the business and 100%financial benefits can be given to you.
The Corporate Sponsorship for a Mainland Business Setup in Dubai is generally given preference since the management of the corporate firm is available almost anytime you require them. The operations of the new set up will not be hindered even if UAE national is deceased since the 51% shares are held by a company and not an individual.
It is always recommended to take advice from company formation consultant if you are setting up your business in Dubai for the first time, as they can assist you in finding you trustworthy Local Sponsors for your mainland business setup.
The Local Sponsor is a UAE National and individual shareholder of 51% stakes in your mainland business setup. Full operational powers will be provided to you as the foreign shareholder who is usually appointed as the Manager in the company and this will be mentioned in the Memorandum of Association.
So, this was all needed to know about you local sponsor services and do remember that the Local sponsor service is a very important aspect for a business to sustain in the Dubai market. There are a lot of benefits of having Local sponsor service to any foreign company intending to set up business in Dubai mainland.