One of the most common areas of confusion when it comes to starting a business in Dubai surrounds the need for a local sponsor. Are they always required? Who needs one? How do you find one? How much do they cost? The list of questions from budding entrepreneurs is seemingly never-ending.
This confusion has perhaps increased in recent months since the relaxation of 100% foreign ownership laws throughout the UAE. While once the answer to the question – do I need a local sponsor? – was relatively easy to answer, now it depends on several factors such as the nature of your business and where you intend to set up.
Up until recently, any non-GCC citizen wishing to do business from the UAE mainland would have to engage the services of a local sponsor and hand over a 51% stake in their company. This was always the case unless the business in question was operating under a professional services license.
Another option for non-GCC entrepreneurs wishing to retain 100% company ownership would be to set up in a UAE free zone. As well as the ability to operate without the services of a local sponsor, free zone companies also benefit from exemption from customs, import and export tax and the freedom to repatriate all capital and profits.
However, these are no longer the only two options available to international entrepreneurs that do not wish to hand over a 51% stake in their business. Now, in many cases, non-GCC nationals are no longer required to work with a local sponsor to set up in the Dubai mainland with many sectors now allowing for 100% foreign ownership.
The answer to this question largely depends on the type of business you wish to carry out. If your chosen business activity can be performed with a professional license, then the answer is no.
Professional licenses cover service based industries rather than industry or manufacturing.
Thanks to recent legislation, brought into force at the end of last year, it is also possible to retain 100% ownership of your business in a range of other industries. Provided the industry that you work in is not on the ‘negative list’ below, you are permitted to apply for permission to own 100% of your mainland UAE company:
Keep in mind that 100% foreign ownership is not guaranteed. It is possible that your application could be denied.
If you’re working outside of a permitted industry or you are not granted permission to retain 100% ownership of your company for any reason then you will need to find and work with a local sponsor.
While the idea of handing over a 51% stake of your business to a relative stranger may seem daunting, the reality is rather different. Local sponsors do not usually have any say in the decision making process of your business, nor do they take 51% of your profits. In most cases, local sponsors are paid an annual fee for their services.
What’s more, finding a local sponsor does not have to be a difficult process. Provided you seek professional support and guidance when seeking the services of a sponsor, you will have nothing to worry about.
The key is to take the time to get to know your local sponsor – what their service entails, how much it will cost and what level of input (if any) do they expect?
Perhaps most importantly of all, it is imperative that you put into writing, with the assistance of a UAE company setup expert or lawyer, exactly who has a claim to ownership of your business and under what circumstances. Although it is uncommon, it is not completely unheard of for local sponsors to try to stake a claim for ownership.
One of the best ways to avoid such instances is to work with a corporate sponsor rather than an individual. Corporate sponsors are UAE-owned businesses which can work on your behalf as a sponsor. When you work with a corporate rather than an individual, you have total peace of mind that the agreement you are entering into is legally sound.
Whether you opt for an individual or corporate sponsor, you can expect local sponsor fees in Dubai to start at around AED 8,000. However, the exact amount of local sponsor fees that you’ll pay in Dubai will depend on many factors including the nature and size of your business.
As the rules on 100% ownership are not always clear cut, it is a good idea to work with a UAE company formation expert before making any decisions regarding sponsorship.
An expert, such as AYS, can work with you to understand the precise needs and nature of your business before advising on whether you are likely to be permitted to retain 100% ownership. If such a scenario is unlikely, we can also help you find and secure the services of a local sponsor.
We can also assist with business licensing, registration, and related solutions. All we need from you is a little information about you and your business and a few documents. Then, you sit back and relax while we manage every step of your license and visa application for you, liaising with all relevant authorities and government bodies and keeping you updated along the way.
When you work with a company formation expert, you don’t just get our expertise, you get total peace of mind that your license application is in safe hands – helping to protect you from delays, confusing forms and mountains of paperwork.