Do you need a local sponsor? Understanding UAE law is crucial for anyone planning to start a business in the United Arab Emirates. This is the first question that comes to mind if you want to establish a company, particularly on the mainland.
For expert support throughout the process, Recordac Accounting and Consulting Services in Dubai is here to guide you every step of the way. Contact us today to schedule a complimentary consultation.
The UAE has become a successful example of what international business professionals strive for, with its stable economy, friendly policies towards investors, and a globally recognized infrastructure. However, before starting your dream business, you must be aware of whether you need a local sponsor, depending on the nature of your business and your location.
What Is a Local Sponsor in UAE?
According to UAE law, the local sponsor is a UAE native and the type of UAE national (people of the UAE land) who is a partner or a service agent in your business establishment.
However, this does not imply that they dictate how you conduct your business. The local sponsor is typically charged an annual fee and has no direct involvement in management.
When Do You Need a Local Sponsor?
Can you use a local sponsor? Being aware of UAE law, you make decisions based on the type of business and its location. So here is a brief reference:
- Mainland Companies
You may also require a local sponsor to establish a business on the mainland. More activities, however, are permitted to be owned by 100% foreign ownership, especially in areas such as technology, education, manufacturing, and health, through a recent amendment to the UAE Commercial Companies Law. However, this is still subject to the particular activity as listed by the Department of Economic Development (DED).
- Professional Licenses
However, you may not require the full local partner, particularly if your business is professional, such as a consultancy, law firm, engineering firm, or medical practice. Instead, a Local Service Agent (LSA) will be needed. The shares are not owned, and LSA does not disrupt the operations, but must remain legally obligated to access licenses.
- Free Zone Businesses
If you decide to establish your business in one of the numerous UAE free zones, you do not need a local sponsor. You will enjoy tax exemptions, simplified import/export procedures, and own everything, becoming a 100 percent owner.
Benefits of Having a Local Sponsor
Even though the rules are lenient, there are still cases when a local sponsor is useful. Here’s why:
- Access to Government Contracts: Some contracts are only open to companies with local sponsorship.
- Wider Market Access: You can operate anywhere in the UAE without restrictions.
- Credibility: Local sponsors can offer insights, connections, and social credibility in navigating the UAE business culture.
Risks and Considerations
When asking, ‘Do you need a local sponsor?’ understanding UAE law also means recognizing the potential risks associated with it. Selecting an incorrect sponsor may lead to legal issues or unexpected expenses. Ensure you:
- Draft a clear, notarized agreement outlining roles and responsibilities.
- Avoid “sleeping partners” who may later dispute their passive role.
- Work with legal and business advisors to protect your interests.
Changes in UAE Law You Should Know
To attract more foreign investments, the government of the UAE has significantly eased ownership laws. More than 1,000 business activities have been subject to 100% foreign ownership since 2020, without requiring local sponsorship, encompassing various sectors.
This law is not blanket, and there are still highly regulated sectors, such as defense, oil and gas, and banks, which are still considered to require a local Saudi partner. Additionally, the implementation of these laws may vary slightly in each emirate; therefore, it is essential to employ a country lawyer or lawyers.
How to Choose the Right Setup
The choice of the proper legal structure is an answer to the question of:
- Will I operate within the mainland or a free zone?
- Is my business activity on the DED’s list of 100% ownership categories?
- Do I want to target government contracts or private clients?
The answers you provide will determine whether you require a local sponsor or not. In cases of doubt, it is advisable to consult a professional for guidance.
Final Thoughts
Can you use a local sponsor? To establish a successful business in the Emirates, it is essential to understand the local laws. Due to the changing regulations, foreign investors have become more flexible and have more freedom to own. Yet not every size fit everyone. Depending on your industry, location, and business objectives, your legal needs are determined.
For personalized guidance and seamless company formation, Recordac Accounting and Consulting Services in Dubai is your trusted partner. Contact us now and bring your business to life.
Ready to set up your business in the UAE? Whether you need a local sponsor or not, Recordac is here to simplify the process.