Consultancy

Why Is A Local Sponsor Required To Register A Company In Dubai?

By mariabrooks 05 May, 2022 293
Why is a Local Sponsor required to Register a Company in Dubai?

Dubai was an oil-based country. Dubai has become a business center over the past two decades. Foreign investment has been attracted by state-of-the-art technology, top-notch amenities, and friendly government policies. Dubai is a business center due to its geographical location. More than 90% of Dubai's residents are foreigners. Foreigners can set up small or large businesses in Dubai thanks to the government. It is important to follow the rules and regulations for setting up a business. You can set up a business either on the mainland or in a free zone. You don't need a local sponsor. A business established in a Free Zone is 100% owned and can be repatriated as profit. Only local sponsors can allow you to trade in the UAE. A local sponsor was required to register a company in Dubai mainland. Except for businesses that are licensed to provide professional services, the local sponsor receives 51% of all shares. This is now changed by the new FDI law.

1. Who are the local sponsors?

Local sponsors are also known as sleeping partners in mainland businesses that have foreign investments. The company holds 51% of its shares. He must also be a Dubai resident and have a valid passport. A sponsor is not allowed to participate in business decisions and is required to pay an annual fee.

2. Types of local sponsors

  • Local sponsor: A local corporate company that is registered in Dubai may act as a local sponsor to a foreign competitor or who is interested in setting up in Dubai. The 51% stake is held by the local sponsor, while the 49% goes to foreign companies. This type of deal is best for LLC formation.
  • A local individual sponsor: Any local resident may be a sponsor. He can or not participate in business activities. This is appropriate for industrial or commercial setups. At least 51% of the company's shares should be held by the sponsor.
  • A local service agent can become a sponsor. This is best suited to professional businesses.

3. Local sponsoring is a great way to register a business

  • Access to the local market and expert
  • A local sponsor can set up an LLC and it is completely tax-free. Foreign investors can also repatriate 100%.
  • You can open multiple branches in the UAE
  • Take control of government projects

4. Considerations for appointing a local sponsor

Although it is beneficial to appoint a local sponsor, before the company hires one, they must verify the details of the sponsor. These points must be confirmed:

  • First, verify that he is a Dubai resident.
  • The second is to verify the family history of the sponsor
  • Status of the sponsor
  • The sponsorship contract must be signed. Also, the fees that will be charged for it must be noted. The agreement must clearly outline the role of the local sponsor in decision-making, the working of the company, and the status of the contract at the time of termination.
  • Higher benefits will be available to government employees who are local sponsors.

5. Dubai company registration requires a sponsor local

It was compulsory to hire a local sponsor. The new FDI Law allows 100% ownership in certain areas. This is done to attract foreign investment and diversify the economy. Two lists of sectors were created by the government: There is a positive and a negative list. Sectors on the positive list are eligible for 100% foreign ownership. However, the sector in which a local sponsor must be appointed is included in the negative list. The following sectors are included on the negative list:

  • Exploration and production of oil
  • The investigation, security, and military
  • Banking and finance
  • Insurance
  • Pilgrimage
  • Services for water and electricity
  • Services related to fishing
  • Telecommunication
  • Road and air transport
  • Publishing and printing
  • Commercial agency
  • Medical retail

Conclusion

Companies investing in the Negative List need to find a local sponsor. Local sponsors are essential to access the local market. They also provide the expertise and knowledge necessary to deal with local regulations and the market. It is easy to find a local sponsor. The company must be careful when appointing local sponsors. Trustworthiness is essential for a local sponsor. Make My Firm Business Setup Dubai can help you understand your activity and determine if you are eligible to receive 100% ownership. We can also help you find a trustworthy local sponsor.