Starting a business can be complicated at the best of times. Add to that starting a business in a foreign country, and the task can feel like a minefield. However, this does not seem to deter international business people when it comes to starting a business at United Arab Emirates. And it should not. True, getting a business up and running involves work everywhere, but if you approach it with the right knowledge and know-how, there's no reason why you can not overcome the challenges.
One of the challenges of starting a business in the UAE is the formalities and procedures. For example, if you want to start a business in Dubai Mainland, you will need a local sponsor for your business. The local sponsor will own the majority, or 51% of the shares in the company, while the owner will own 49% of the shares in the company. Of course, the thought of giving away half of your business is overwhelming, but that is far from the whole story. And in some cases, you may not want a local sponsor at all.
That's why any entrepreneur looking to set up in the Emirates needs to know exactly where they stand when it comes to holding their business: do you need a local sponsor - and if so, what exactly does that mean?
Everything you need to know about local sponsorship in Dubai
Involvement of local sponsors in Dubai is crucial for the establishment of mainland companies in Dubai, as stipulated in the UAE Commercial Companies Law and the UAE Civil Law. Local sponsors or nominee shareholders are either UAE nationals or a company whose shareholders are 100% UAE nationals. Local sponsors in the UAE may also act as a local service agent who receives an annual fee for the services they provide.
The appointed local Dubai sponsor does not assume any role in the day-to-day operations of the company. He is responsible for liaising with the necessary government agencies on behalf of his company to obtain immigration, visa and other business licenses.
Types of Local Sponsorship in UAE
Let us take a look at the types of local sponsors available in the UAE. The type of local sponsor required depends on the business activities you want to carry out.
Individual sponsorship - In this case, an individual Emirati sponsors your business and holds a 51% stake in your company. Individual sponsors must be UAE nationals, over 21 years of age and can be male or female. Individual sponsors do not need to have an understanding of how to run a business. In exchange for a set of annual fees, the local partner can give the foreign investor full authority over the business and its day-to-day operations.
Corporate Sponsorship - This is similar to individual sponsorship, except that the sponsor here is the UAE national company. Again, the local sponsor will take a 51% stake in the company. In both cases, the foreign shareholder will manage the company while the local sponsor will receive a fixed fee or profit sharing.
Local Service Agent - These representatives are needed when a professional such as an engineer, a doctor or an accountant starts a business operating in his field of expertise. In this case, foreign businessmen can apply for a professional services license and keep their business 100%. However, they must hire a local service agent to represent them in all business dealings with government agencies. The local service agent does not have an ownership interest in the business and instead receives an annual fee for their services.
How to choose a suitable local sponsor in Dubai?
Choose an excellent local sponsor that you trust through a personal relationship
If you do not know any local sponsor in UAE, you can hire an experienced business formation consultant to do the job for you.
Do not opt for a very cheap sponsor as some of them are not serious about the actual business
Transparent fees, sometimes the sponsor is paid a hidden fee for signing an official document.
Always have the right documents, contacts, powers of attorney and side agreements in place to protect your business assets.