Foreign investors must understand the importance of the role and functions of local UAE sponsor. One of the main challenges to start and operate a business in Dubai mainland is to find a local sponsor or service agent who is going to vouch for your trustworthiness in good faith before the competent authorities to let you in the country for the purpose of business, employment, or visit.
The arrangement of a local sponsorship is a compulsory condition for a foreign investor who wishes to start up a business venture or make an investment in Dubai mainland. The mainland Dubai strictly adheres to the UAE government sanctioned shareholding structure which is 51% local share and 49% expat share. A foreign person must find a local sponsor, a UAE national, who is going to hold 51% of the company’s shares. Mostly, local sponsors play the role of a silent or dormant business partners and they do not take part in the administration or management of the business operations and are happy to receive a yearly income from the foreign investor according to the rules of profit-sharing laid down and formally agreed upon in the contract. However, foreign investors sometimes do make some agreements with local sponsors other than the one already inked in black and white but such agreements are not considered as admissible evidence should there arise a need to move to a court for the settlement of some dispute between the local sponsor and foreign investor. The profit and loss sharing ratio can be settled in the contract which does not have to correspond to the ratio of which capital is invested by the local sponsor and foreign investor.
The 51% sharing requirement doesn’t apply to companies or businesses set up in the free zones. 100% ownership is given to the investor.
Types of sponsors
The sponsor that a foreign investor or a person of foreign origin should find could be a person or a company based in UAE. There are three types of sponsorships in UAE, namely:
- Corporate sponsorship
- Individual sponsorship
- Local service agent
When a UAE based company owned by local nationals holds 51% of the shares and liabilities of a company owned by a person or persons of foreign origin, it is called corporate sponsorship.
When a UAE national holds 51% of the shares of a company owned by a person or persons of foreign origin, it is individual sponsorship.
Local Service agent:
When a professional license holding professional such as a doctor, engineer, or artisan wants to start a business in Dubai by offering his professional services, then in such a case he would need a local service agent who is going to act as the representative of the business in all dealings with the government departments. He will charge a certain already agreed-upon fee for rendering his services to the business.
Necessity of sponsor in United Arab Emirates
It is mandatory by UAE law to have a local sponsor or service agent for your business. The importance of having a local sponsor can be gauged from this single biggest fact alone.
- UAE law makes it incumbent upon foreign investors to find a local sponsor before starting up a business in UAE mainland.
- Even a visit is not allowed without a local sponsor based in UAE. Entry is not allowed otherwise.
- For employment too, a sponsor is required.
A professional license holder will have to have a local service agent who is going to represent the business in all dealings with the government departments.