Know all about Local Sponsorship in UAE
This 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.
One of the challenges to start and operate a business in UAE “mainland” is the element of local sponsor owning 51% 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 Gulf States are passing new legislations and establishing Free Trade Zones allowing 100% ownership to expats.
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 settle a business in UAE mainland. This condition doesn’t apply on free zone. As it is clear by the name itself that local sponsorship means you are tying the knot for business purpose with an Emirati. There are three types of local sponsorship. Selection of local sponsorship is a subject matter of business activity.
Types of sponsorship
There are three types of local sponsorship. One is corporate sponsorship, Second Individual sponsorship and third type is association with Local service agent.
When a UAE national company owned by individual or group of Emirati partner, is tying the knot means holds 51% of share and liabilities of any company which is owned by an individual or group of partners of foreign origin. It is called Corporate Sponsorship. In this case a company is sponsoring you not an individual.
Myth – Most of the people have a myth that their local sponsor company will share only profit.
Fact – Local Sponsor is not only sharing the profit, He/she holds 51% of liability also. He is also accountable for company’s actions.
When– when you want to set up a limited liability company, a trading company or a manufacturing unit you can obtain corporate sponsorship.
When an Emirati national in his/her individual capacity becomes your Sponsor it is called individual sponsorship. It is not necessary that he/she is also operating business in same domain. He/she may be a professional, may be a government employee in UAE or may be a businessman. He/she will also hold 51 % share & 51 % 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 fix annual fees.
When– when you want to establish a trading company or a limited liability company you must appoint and individual sponsorship.
Local Service Agent
In case you are a professional a Doctor, an engineer, an artisan and you want to set up your business by offering your professional expertise. In this case you will require appointing a local service agent. This agent will merely act as a representative of the company in all administrative dealings with Government departments (such as immigration and ministry of labor formalities). He/she will not hold 51% share of your company.
The remuneration of the Local Service Agent is normally agreed on an annual fixed fee basis, and is a matter of commercial agreement and can vary depending on the social and family prominence of the service agent and the precise contribution he/she makes to the business of the branch.
Local service agent can be appointed in following cases;
- For Professional Licenses
- For Branch of foreign companies
- For representative offices