Entrepreneurs, as well as business owners, are often faced with many challenges as they plan to set up their business or open a foreign branch in UAE. While there are numerous doubts in their mind, one common question most of them have is,
Do I need the support of a local business owner to set up my business in this Arab nation?
The answer to this question is not straightforward and depends on several factors, for example, the type of business you are planning to run, the area you are planning to run in, followed by several other considerations.
So to help entrepreneurs and business owners, we decided to prepare this comprehensive guide, which will help you set up business in the UAE.
What exactly is local sponsorship?
Before we dwell into the need, let’s first discuss what local sponsorship means.
According to the Commercial Corporate Law presiding in UAE, any individual who is planning to open a Limited Liability Company (LLC) is supposed to do so in partnership with a local business owner or individual, who in turn will hold majority stake (51%) in the new organization.
So How Can One Setup A Company in UAE?
To set up a business in UAE, you have three options:
1. Setting Up Business in Free Zone
This is the best option for you to set up a business in UAE without selling off a majority stake to any sponsor. These areas offer a plethora of benefits for business owners such as tax exemptions, as well as, a 100% share of profits. Dubai free zone company formation gives you direct access to the local market and doesn’t require the support of any kind from a local third party.
2. Professional Service License
This is the best and the only way for a business owner to set up a business outside free zone without relinquishing majority stake of organization. Here a business owner (doctor/engineer/ architect) can offer professional services without having any local sponsor, however, does need a national agent who will represent the business and will handle all the local dealings example licenses, taxations etc. The national agent, in turn, gets a fixed fee for this and the business owner gets to keep 100 per cent of the profits.
3. Sponsorship or those who wish to conduct commercial trading on the UAE mainland, sponsorship is mandatory. You can either choose to appoint a local sponsor or go for corporate sponsorship the different between the two is mentioned below:
• Local Sponsorship
A local sponsorship involves a UAE national to hold 51% of stake within your organisation. Generally, such sponsors agree for a fixed annual fee and in return tend to give the power of attorney to the foreign partner. In such cases, the actual business owners can retain 100% of profits and do not need to share the same with the majority stakeholder. Also, all trades are registered in the name of the company and not on the name of the majority stakeholder.
• Corporate Sponsorship
Corporate sponsorship is similar to local sponsorship, however, in this case, the sponsor is not an individual rather a UAE national company registered under the government laws. Similar to local sponsorship, corporate sponsors also tend to agree on an annual fee and in return give total control to the foreign investors.
So, Do You Need A Sponsor?
No, not necessarily. Depending on the type of company you are planning to set up in UAE you may or may not need a local partner. If you are planning to set up an LLC, then you will be required to have a local partner and sponsor who will hold the majority of stake in your organization.
While the idea of giving away 51% of stake sounds alarming, there are generally no challenges companies face in doing so. In most cases, companies can reap 100% of the profits while paying a fixed annual fee and a percentage of benefits to the sponsor who in turn comes with a lot of advantages.
If you wish to know more about corporate sponsorship or need our assistance with finding you a local sponsor, give us a call at +00971-55-679-1998.