Do I Need to Use a Local Sponsor to Setup Company in Dubai?

If you’re thinking about starting a business in Dubai, one of the first question that come to mind is “Do I need to use a local sponsor to setup company in Dubai?” The answer depend on type of business activity you choose and location of your company. Dubai provide several options for entrepreneurs and understanding the rules can help you save time, money and stress.

This guide explains everything you need to know about local sponsorship, the alternatives available and how to choose the best option for your business.

What Is a Local Sponsor in Dubai?

A local sponsor is a UAE national or a company fully owned by UAE national who partner with you when you start a business in mainland of Dubai. Generally if you want to open a mainland company you need a local sponsor who would hold 51% of share in your business while you would own remaining 49%.

However, this doesn’t mean the sponsor controls your operations. In most cases, the agreement gives you full operational control while the sponsor receives a fixed annual fee. The main purpose is to meet the legal requirement for local ownership in certain business sectors. 

Do You Always Need Local Sponsor?

The short answer is no. Thanks to current changes in UAE company law. All business activities not require local sponsor anymore. In 2021 UAE unveiled changes allowing 100% foreign ownership in many business sectors on the mainland.

This means that if your activity is on the approved list, you can own your company fully without involving a UAE national. Still, some sectors such as activities related to strategic industries, defense or certain professional services may require a local sponsor or a local service agent. Get details about Business Setup in Dubai.

Mainland vs. Free Zone – Key Differences

Your need for a local sponsor depends greatly on whether you choose to set up in the mainland or a free zone.

Mainland Company

• Run anywhere in Dubai and the UAE
• Can work straight with local market without limitations
• May require local sponsor depending on business activity
• Propose for government contracts

Free Zone Company

• Functions within specific free zone
• Enjoys 100% foreign ownership with no need for a local sponsor
• Benefit from tax exemptions and customs advantages
• Limited ability to trade straight with mainland without using local distributor

If your target market is mainly outside the UAE or else within a specific industry hub, a free zone might be your best choice. But if you want to serve the local market without limitations a mainland company could be more apt. 

When You Still Need a Local Sponsor?

Even with the new rules, there are situations where you still need a local sponsor or a local service agent:

• Activities on the restricted list – These may include oil exploration, certain transportation services, security services and other sensitive sectors.
• Professional licenses in mainland – While professionals can own their business 100% they might need a local service agent for administrative purposes.
• Special approvals – Some businesses need government approval from specific departments and part of the requirement may involve having a local sponsor.

Benefits of Having Local Sponsor

When many entrepreneurs prefer 100% ownership working with a local sponsor can also have advantages:

• Easier access to local market – Sponsors have strong networks and connections in Dubai.
• Smoother government processes – An Emirati partner can help speed up paperwork and also approvals.
• Guidance and local insight – They understand local laws, customs as well as business culture.

If you choose a sponsor carefully and have solid agreement in place the partnership can bring more benefits than challenges.

How to Choose Right Local Sponsor?

If your business requires one choosing the right local sponsor is critical. Here’s what to consider:

• Reputation – Partner with someone esteemed in business community.
• Industry Expertise – A sponsor with experience in your sector can offer valuable advice.
• Clear agreement – Set all in writing, including annual fees, responsibilities & decision-making powers.
• Transparency – Ignore hidden charges/ unclear clauses in your contract.

Trustable business setup consultant in Dubai can help you find a trustworthy sponsor and make sure your legal documents protect your interests.

Steps to Setup Company with or without a Local Sponsor

Here is a simplified breakdown of the process:

• Choose your business activity – This will determine if you need a local sponsor or not.
• Choose the location – Mainland or free zone.
• Get Starting approvals – From Department of Economy & Tourism (for mainland) or respective free zone authority.
• Draft legal agreement – Adding sponsorship agreements if required.
• Lease office space – Necessary for most licenses.
• Complete final licensing – Pay fees, submit documents and receive your trade license.

Costs Involved

While we won’t go into exact numbers (as these vary depending on location and activity), keep in mind:

• Mainland licenses may have sponsorship fees if required.
• Free zones charge package fees, often including visas, office space and other benefits.
• Additional costs include visa processing, name reservation and legal translation.

Common Misconception About Local Sponsorship

• “Sponsor controls the business” – In many cases operational control remains with foreign owner through side agreement.
• “You must share profits” – Many sponsorships are based on fixed annual fee rather than profit sharing.
• “It’s risky to have a sponsor” – With a proper legal structure the risk is minimal.

Recent Changes in UAE Law You Should Know

The UAE government has made major reforms to attract foreign investment:

• 100% foreign ownership is now allowed for many mainland business activities.
• No local sponsor is needed for most trading, manufacturing or services sectors.
• The professional license structure still exist but with more flexibility for expats.

Some changes make Dubai even more attractive for entrepreneurs who want full control over their businesses.

Related Articles:

» Get a UAE Visa Without Company Sponsorship

» Local Sponsors to Do Business in Dubai

» Company set-up in a Dubai Free Zone – The Advantages

» Dubai Mainland Company Setup Process

» Where can i Setup Company in Dubai?

Understanding Dubai’s Sponsorship Rules

So, do you need to use a local sponsor to setup company in Dubai? It depends on your chosen business activity and location. If your business fall under the approved list for 100% foreign ownership, you won’t need one. However if you operate in restricted sectors or want to take advantage of certain local market benefits, working with a local sponsor can still be valuable.

Before making your decision, research your activity’s requirements, contact with a professional business setup consultant and choose the structure that aligns with your goals. Dubai offers plenty of opportunities for both mainland as well as free zone companies. So with the right planning your business can thrive.

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