One of the challenges to start and operate a business in the United Arab Emirates ‘mainland’ is the element of the local sponsor owning 51 per cent of the business.
Historically, the legislation in Gulf states has only allowed partial ownership to expat businessmen. It is now changing and a number of GCC states are passing new legislations and establishing free trade zones allowing 100 per cent foreign ownership.
However, in the mainland, it is still a 51 per cent (local) and 49 per cent (expat) shareholding structure.
Hence, it is very important for foreign investors to understand the role and functions of local sponsorship. Here we will tell you everything about local sponsorship in UAE.
Local sponsorship is a compulsory condition for a person of foreign origin who wants to establish a business in the UAE mainland. This condition doesn’t apply to freezones. There are three types of local sponsorship and the selection is based on your business activity.
Types of sponsorship
The three types of local sponsorship include corporate sponsorship, individual sponsorship and the association with a local service agent.
Corporate Sponsorship – When a UAE national company owned by locals holds 51 per cent of the share and liabilities of a company owned by an individual or group of partners of foreign origin. In this case, the business is sponsored by a company, rather than an individual.
It is a myth that the local sponsor will share only the company’s profits; it is accountable for all the actions.
When – Works when you want to set up a limited liability company, a trading company or a manufacturing unit.
Individual Sponsorship– When an Emirati national in his/her individual capacity becomes your sponsor. It is not necessary that he/she is also operating a business in the same domain. The individual may be a professional, a government employee in the UAE or a businessman.
The Emirati will also hold a 51 per cent share and a 51 per cent liability of the company. In this type of sponsorship other options are also available. The local sponsor can hand over the power of attorney to the foreign partner and ask for a fixed annual fee.
When – Works when you want to establish a trading company or a limited liability company
Local Service Agent – When a professional – a doctor, an engineer or an artisan – wants to set up their business by offering professional expertise. In this case you will require to appoint a local service agent. This agent will merely act as a representative of the company in all administrative dealings with government departments (for immigration and ministry of labor formalities). He/she will not hold a 51 per cent share of your company.
The remuneration of the agent is normally agreed on an annual fixed fee basis and is a matter of commercial agreement. It can vary depending on the social and family prominence of the service agent and the precise contribution he/she makes to the business.
When – A local service agent can be appointed in following cases –
• For professional licences
• For branch of foreign companies
• For representative offices
Naveed Kashif is the director of Corporate Services at biznet Consulting