Despite the substantial economic challenges followed by the COVID-19 pandemic, the UAE authorities are working diligently to improve the economic growth and attract more foreign investments in the Emirates. Either small and medium-sized companies (SMEs) or simply small startups, companies of all sizes in developed and emerging industries are equally benefiting from the local welcoming policies. That said, foreign investors can freely leverage this opportunity and start their businesses in the UAE. However, to reap the benefits, there are several conditions and regulations that investors must be aware of and follow through. This includes:
- Ownership requirements of an LLC firm.
- If local sponsorship in Dubai is needed when starting a business here.
- Types of local sponsorships available in the UAE.
- Permissible business activities as per various economic zones.
- Ways it could help small businesses flourish in the local market.
There are various aspects that foreign investors must consider when pursuing a specific business in the United Arab Emirates, which will be explained in the remaining part of this blog.
What are Local Sponsors in UAE and Why Do You Need Them?
As per the Company’s Law of the UAE, foreign companies or individual investors wishing to initiate commercial, industrial, or trading business activities in the UAE Mainland must partner with an Emirati (person or corporation). The local partner shall hold at least 51% of your shares without participating in your profits or loss against a negotiated fixed annual fee. In the case of professional business activities, investors can hold full ownership of their LLC business in the UAE mainland; however, they will need assistance from a Local Service agent. Nonetheless, this rule is exempting in Free Zone companies, and 100% ownership is permissible in sole establishments without a compulsion of local sponsorship.
What types of Local Sponsorships are available in the UAE?
If an entrepreneur wishes to start a new business in Dubai or other Emirates, he must be aware of all the prerequisites. Local partnerships like individual sponsorship, local service agents, or corporate sponsorship in Dubai can all be employed to start a new company in Dubai. Let’s look into these categories based on geography and company activities:
Individual sponsorship is a local sponsorship in Dubai where an Emirati national acts as your sponsor in their personal capacity. While the Emirati will own a 51 percent stake in the firm and bear a 51 percent liability, the Emirati sponsor can provide the foreign partner power of attorney in exchange for a predetermined fee over a Memorandum of Association contract (MOA).
Local Service Agent
Local Service Agent is another important local sponsorship in Dubai. This form of sponsorship is designed for professionals and talented people such as physicians, artisans, and engineers, and all it takes is the appointment of a local service agent. The agent is paying a set annual salary and does not own a 51 percent stake in your business.
Corporate Sponsorship in Dubai
Corporate sponsorship in Dubai is considered the most prevalent kind of local sponsorship in Dubai. Business sponsorship occurs. When a UAE national business controlled by Emiratis (Locals) owns 51 percent of the share. And responsibilities of an organization established by a foreign individual or group. Instead of an individual, a firm with a comprehensive professionals’ team supports the business in this form of sponsorship.
Read also: How Do I Start an LLC in Dubai?
How Does Corporate Sponsorship Benefit Small Businesses?
Corporate sponsors in Dubai provides the same benefits to foreign investors when dealing with an individual local sponsor in Dubai. As with their extensive resource capacity and networking. They offer end-to-end solutions to your company. Even with the emerging concerns that investors may not know earlier. Some of the advantages you can benefit from their association includes:
- You won’t have to face issues like delays in getting signatories or approvals in urgent situations, unlike in individual sponsorship.
- So you don’t face any risk and subsequent troubles of disappearing partner.
- You get complete control over your business, staff management, customers, and deliverables. And there is no involvement in any of your business’s operations by your corporate sponsor.
- Although your local corporate sponsor in Dubai owns 51% shares, you still have the sole rights on all the financial benefits without any claim from your sponsor, similar to individual sponsorship.
- It provides better succession planning protection in case your corporate sponsor passes away.
- A first-tier legal counsel always drafts a detailed legal agreement. So your rights are always securing under this contract and giving you complete peace of mind.
Partnering with a reliable corporate sponsor in Dubai, such as Corporate Business Enterprises (CBE), is crucial for small business setups and SMEs for a stable footing in the UAE market.
In essence, when you plan to conduct commercial or trading activities in the UAE, the benefits of partnering with a corporate sponsor will always outweigh other variables for an LLC company formation in Dubai!