Dubai continuously growing its image as one of the top locations to start a business and attraction for investors to invest in, because of its economic growth, multinational culture, safety and security rules and most important in Dubai businesses have many opportunities and different zones to setup a business and each zone has its own benefits for businesses.
According to the Pinkerton Risk Index Report of 2016, UAE was considered in the top 5 safest places in Asia-Pacific and Middle East to conduct business, which makes UAE even more attractive place for businesses to invest in Emirates and start their business in Dubai.
There are two main zones where foreign investors or expatriate can register their business in UAE. Either business can do Mainland Company Formation or they can start their business in Free zones of Emirates by registering their company as a Free-Zone Company.
To form a company or to start a business in these zones there are certain requirements which every business has to fulfill. One of the most important requirement is to find a local sponsor if investors are willing to do a business setup in mainland zone.
Free-zones do not require any local sponsorship; businesses can have 100% ownership in free-zones of UAE. But for Mainland it is mandatory for foreign investors or expatriate to have a local sponsor.
Who Are Local Sponsors?
Local sponsors can be individuals who should be UAE nationals or can be a UAE owned company, who are willing to take responsibility to bring foreign companies or expatriate in UAE as an investor, or as an employee in UAE.
Every expatriate shareholder required sponsorship from local sponsors if they want to incorporate a company in UAE mainland.
Types of Local Sponsors
To benefit the locals of Dubai, UAE Government has made it mandatory for the foreigners to get sponsorship from UAE nationals or UAE owned companies. Foreign companies have to pay annual fees to get the services from these local sponsors and also companies need to give a certain percentage of shares to these local sponsors as well. There are 3 main types of sponsorship available for businesses;
These are the individuals of UAE who are the Emirati Nationals and can provide sponsorship to foreign investors within their own capacity. These Emirati Nationals will represent the foreigners in Dubai and work on their behalf.
These local individual sponsors will hold the 51% shares and liability of the company but they can transfer the power of attorney to their foreign partners in the exchange of the decided fees which they will charge for their services. It is not necessary for these local sponsors to do the investment in the business because they charge the fees of the services which they provide in form of taking responsibility of foreign investors.
As compare to the individuals, these sponsors are the companies which are UAE owned and these companies provide sponsorship to expatriates and these companies will represent their foreign partners locally in Dubai.
The functionality of corporate sponsors are same like of individual sponsors like these companies will hold 51% shares and liabilities of the business and take the responsibility of the businesses. Just like individual sponsors it is not necessary for the corporate sponsors to invest in the business and they also charge decided annual fees for their services.
These corporate sponsors can be any local or government authority, depending on the requirement of the business which foreign investors want to start in Dubai. Both these authorities have different fees structure depending on the benefits which businesses will have by making these authorities as sponsors.
Local Service Agents
These are another type of local sponsors in Dubai who are the representatives of professionals locally in Dubai. For example any professional like doctor, engineer or artisan wants to start a business in Dubai to provide their services they will need a local service agent to be there representative in dealings with government departments.
These local service agents charge the pre-agreed fees from professionals in return of their service and they do not hold any shares and liability in the business.
Responsibilities of Sponsors
There is a reason that every foreign company needs a local sponsor, if they want to incorporate a business in Dubai Mainland. These sponsors took the responsibilities of the foreign investors and represent them while dealing with the Government Departments.
Dubai is the multi culture location and most of the dealings and business contracts are done in English but for business registration there are few documents that are in Arabic and to deal with this a local authority is required who can understand and interpret these documents and can sign on the behalf of their foreign business partners.
It is not necessary for the local sponsors to invest in the business but still they hold 51% shares and liability of the company because a local sponsors is responsible for your dealings in Dubai. The risk value of a sponsor is also high by being a 51% partner of the company. For example if a company defaults then the local sponsor is liable for;
- Cheques issued by the company
- For employees of the company and to cancel their work visas
- To close company and bank accounts
So there certain risks involvement for local sponsors when they provide sponsorship.
Individual Versus Corporate Sponsors, Who Are Preferable?
As every business has its own requirements and willingness to invest in their new startup, so it totally depends on the investors that how much they are willing to invest in sponsorship requirements. But it is always recommended to consider a company as sponsors even they charge high fees as compare to individuals but companies have more experience in dealing with government departments and their requirements. Companies who provide sponsorship have complete setups in Dubai, so there are low risk factors as compare to individuals.
We at KWS Middle East are providing business setup consultancy to many businesses from almost a decade. Our experts are specialized in business registration, product registration, trademark registration and we also provide local sponsorship to those foreign companies who are willing to incorporate a business in Dubai mainland.
So if you are looking to start a business in Dubai and need local sponsors contact us and Get Free Consultation from our experts regarding your requirements.