If you’re a foreign investor aiming to launch a company in the UAE mainland, you’ll need a local sponsor – typically a UAE national – to meet legal requirements, navigate licensing, and ensure regulatory compliance. The good news is that while certain industries now permit up to 100% foreign ownership, many business activities still require a local partner to facilitate day-to-day operations, official paperwork, and overall business credibility. By choosing a sponsor who aligns with your goals, you can safeguard your financial interests, maintain operational independence, and build a thriving venture in Dubai or elsewhere in the UAE.
How to Get a Local Sponsor for Business in Dubai, UAE?
A local sponsor is a UAE national or a UAE-based entity who (or that) officially partners with a foreign investor to establish a mainland company. Historically, federal law mandated that the local sponsor own at least 51% of a Limited Liability Company (LLC), but recent reforms – notably the UAE Commercial Companies Law (CCL) 2021 – have eased foreign ownership restrictions for many business activities.
That said, industries like banking, insurance, and oil and gas may still require a local partner for compliance. Additionally, certain business forms (like professional licenses or representative offices) might allow 100% foreign ownership, yet they still need a Local Service Agent (LSA) for admin and government liaison work. In all scenarios, the right sponsor can provide administrative support, help you acquire permits, and ensure your business abides by UAE legal frameworks.
Why Do You Need a Local Sponsor?
Many entrepreneurs wonder if a local sponsor is necessary, especially now that certain commercial sectors allow 100% foreign ownership. Here’s the deal:
- Legal Mandate: For mainland business setups in key industries, federal law no: 2 of 2015 once required a UAE national to hold majority shares. Although these rules have relaxed, certain sectors still enforce local partnership.
- Market Access: Having a local sponsor gives you the ability to operate across the UAE mainland, rather than being restricted to free zones or specific locations.
- Government Liaison: Local sponsors often assist with licensing, visa applications, labor cards, and official processes at the Department of Economic Development (DED).
- Trust & Credibility: Partnering with a local or corporate sponsor can enhance business credibility among local clients, government bodies, and banks.
If your business activity falls under professional services (e.g., consulting, accountancy, training) or if you’re setting up a representative office, you may only need a local service agent. This arrangement grants you 100% foreign ownership while the agent handles administrative formalities.
Key Law Updates Impacting Sponsorship
The UAE Commercial Companies Law (CCL) 2021 transformed the ownership landscape, allowing 100% foreign ownership in many sectors. However, there remain:
- Excluded Sectors: Banking, insurance, and oil & gas typically still require a local partner or majority local shareholding.
- Optional Corporate Nominees: Even when 100% foreign ownership is possible, some businesses still appoint a corporate nominee to meet formalities or maintain local relationships.
- Federal & Emirate-Level Variation: While the federal law lays the groundwork, each emirate (e.g., Dubai, Abu Dhabi) may have its own licensing frameworks. It’s essential to confirm local regulations with the relevant DED office.
Historical Perspective: Before these reforms, foreign investors generally needed a local sponsor with at least 51% of shares in mainland LLC setups. This older version of the law is largely no longer in effect for most business categories but is still referenced in some specialized activities or jurisdictions.
Types of Local Sponsors
Finding the right sponsor involves understanding the sponsorship models available. Let’s break down the three main types.
A. Individual Local Sponsor
An individual local sponsor is a UAE national (male or female) who may or may not be an expert in your particular field. Typically, these sponsors:
- Must be 21 years or older.
- Provide 51% shareholding if you’re forming a mainland LLC in certain industries.
- Often do not engage in the day-to-day running of your company, granting you operational independence.
The advantage is simpler communication, but you must ensure trustworthiness and clarity on fees. Some foreign investors prefer sponsors with high-profile backgrounds or government affiliations for additional business credibility.
B. Corporate Sponsor or Corporate Nominee
A corporate sponsor is a UAE-based entity (fully owned by UAE nationals) that acts as your local partner. This arrangement can give you:
- More structured legal safeguards often documented in a formal Memorandum of Understanding (MoU).
- Reduced day-to-day involvement from the sponsor, since these entities rarely interfere with daily operations.
- Potential to align with government projects or large-scale ventures if the corporate entity has strong market credibility.
Corporate nominee arrangements are common for LLC formation where the foreign investor wants extra legal formality and established protocols. The sponsor typically holds a nominal share while the foreign investor retains control via side agreements.
C. Local Service Agent (LSA)
For professional licenses and service-based firms, a local service agent can act as an intermediary:
- No shared ownership: The foreign investor maintains 100% control over the business.
- Minimal involvement: The local service agent is primarily responsible for official paperwork, government liaisons, or translations.
- Annual fee structure: You generally pay a fixed annual fee to the LSA, who has no direct stake in your company’s profit distribution.
This option works best for consultancies, salons, clinics, or any professional license where the law does not mandate a UAE national majority shareholding.
Core Responsibilities & Legal Obligations of a Local Sponsor
While UAE Commercial Companies Law reforms have reshaped local sponsorship, many obligations remain. A local sponsor may:
- Sign official documents and government contracts, acting as your authorized representative.
- Facilitate visa applications, labor status approvals, and trade license renewals.
- Provide financial guarantees or assume liabilities in certain arrangements, depending on your MoU or side agreement.
- Engage with government authorities to keep your business compliant with legal frameworks like labor laws and corporate governance.
Liability & Risk: In some cases, the sponsor might be partially liable for financial or legal issues arising from your company. This varies with the sponsor agreement and structure. Some corporate sponsor agreements minimize their direct involvement or risk, while an individual sponsor might have more personal liabilities if they sign certain documents on your behalf.
Steps For How to Find a Local Sponsor in Dubai
Below is a five-step blueprint to secure a reputable local sponsor for your mainland business:
STEP 1: Define Your Business Activity & License
- Determine if you need a commercial license (trading), professional license (consultancy, specialized services), or industrial license (manufacturing).
- Check if your activity requires a UAE national sponsor or if 100% foreign ownership is allowed.
STEP 2: Decide on Sponsor Type
- Individual local sponsor for simpler structures and if trust is established.
- Corporate sponsor if you prefer formal legal agreements and want an entity with robust market credibility.
- Local service agent if you’re opening a professional services venture or a representative office.
STEP 3: Perform Background Checks
- Verify the sponsor’s credibility, legal standing, and track record.
- Confirm if they have government connections or relevant industry ties to benefit your business.
- Use business advisors or law firms for due diligence if necessary.
STEP 4: Negotiate Fees & Side Agreements
- Clarify the fixed sponsorship amount, annual fees, or one-time charges.
- Draft a Memorandum of Understanding (MoU) or Power of Attorney that outlines each party’s rights and obligations, plus how profit distribution is handled.
- Ensure the sponsor’s role in daily operations (if any) is well-defined.
STEP 5: Obtain Approvals & Sign Official Documents
- Submit relevant documents to the Department of Economic Development (DED).
- Secure your trade license, employment visas, and immigration formalities.
- Document the sponsor’s shareholding (if required by law) and finalize official registration.
How to Change or Remove a Local Sponsor
Business circumstances can evolve, requiring sponsor replacement or removal. Here’s how:
- Communicate: Speak with your existing local sponsor to see if there’s a mutual understanding or if you need to settle any pending disputes.
- Consult Shareholders: If you have co-founders or investors, align on why you need to change sponsors.
- Gather Legal Documents: Prepare a notarized Memorandum of Association (MoA), your trade license, labor/immigration paperwork, and any relevant side agreements.
- Court Acknowledgment: Officially file the change in court or via a DED application. The sponsor typically must appear or sign off on the removal.
- Find a New Sponsor: Ensure your new sponsor meets your updated business needs. This step can be time-consuming, so plan carefully to avoid service disruptions.
If your business has a Power of Attorney (PoA) clause allowing you to remove the sponsor unilaterally, the process can be simpler. However, confirm that your sponsor recognized and legally signed this clause.
Local Sponsor Fees and Cost Considerations
The fee for a local sponsor varies based on:
- Sponsor Profile: High-profile or ruling-family-affiliated sponsors can charge more.
- Business Activity: A more complex or regulated sector (e.g., banking, oil and gas) may attract higher sponsorship fees.
- Sponsor Involvement: If the sponsor provides additional services (e.g., government relations, official signatory duties), they may expect higher compensation.
- Annual vs. One-Time Fees: Some sponsors charge a fixed annual fee; others might request an upfront arrangement plus yearly retainer.
On average, a typical local sponsor arrangement can cost around AED 6,000–20,000+ per year, though this figure may fluctuate. Always include potential add-ons or hidden costs, like government approvals or visa quotas, in your budget.
Protecting Your Shareholder Rights & Profit Distribution
Despite the 51% rule for certain mainland business activities, many sponsors sign an agreement that ensures:
- Profit Sharing: The foreign investor can receive the majority of profits by mutual consent, as the legal share distribution differs from profit distribution in the UAE.
- Control Clauses: Side agreements or MoU specify that the daily running of the business and voting rights remain with the foreign investor.
- Liabilities & Guarantees: Clarify whether the sponsor will be liable for financial obligations, or if the foreign investor bears sole responsibility.
Professional drafting by a legal counsel is crucial. A strong contract can secure your interests if disputes or legal challenges arise.
How to Retain Control: Power of Attorney & Memorandum of Understanding
A Power of Attorney (PoA) is an official document allowing you to act on behalf of the local sponsor for business-related decisions. Combined with a Memorandum of Understanding (MoU), it typically:
- Transfers Control: Lets you manage operations without day-to-day interference from the sponsor.
- Waives Rights: Sponsors often waive their rights to share in profits beyond a fixed annual fee.
- Safeguards Ownership: If you can remove the sponsor at will, you maintain ultimate authority over your business setup in mainland.
Pro Tip: Always ensure these documents are signed, notarized, and recognized by UAE courts or legal authorities to avoid potential legal voiding.
FAQs
Below are some frequent questions foreign investors ask before diving into company formation with a local sponsor:
Q1: Do I still need a local sponsor in Dubai if I can get 100% ownership?
It depends on your business activity. Many professional or trading activities no longer require local shareholding, but you might still want a local partner for brand credibility or government connections.
Q2: What if I choose a free zone?
In a business setup in freezone, 100% foreign ownership is allowed, but you can’t generally trade in the UAE mainland without special permits. This is why some ventures choose business setup in Dubai mainland instead.
Q3: How can I change my local sponsor if there’s a dispute?
Follow the step-by-step guide above. In brief, get a court or DED acknowledgment and sign a new agreement with your replacement sponsor.
Q4: What’s a fair sponsor fee range?
It varies widely, but you might expect anywhere from AED 6,000 to 20,000 (or more) annually. Always confirm the sponsor’s expectations in writing.
Q5: Is there a difference between a local sponsor and a local service agent?
Yes. A local service agent does not own shares; they only handle admin tasks for 100% expat-owned professional companies. A local sponsor typically holds shares for mainstream LLC coompany formation in the UAE mainland.
Relatable Examples & Case Scenarios
- Case A: Small Consulting Firm
- A foreign expat sets up a professional license consultancy. They engage a local service agent who charges a modest annual fee. The agent’s involvement is minimal, letting the consultant maintain 100% ownership.
- Case B: Trading Company
- An entrepreneur seeks mainland business for better market access. They sign a corporate sponsor agreement. The sponsor holds 51% on paper but signs an MoU transferring actual control and profits back to the entrepreneur.
- Case C: Ruling Family Sponsor
- A high-profile manufacturing setup obtains sponsorship from a well-known local family. This yields brand prestige and smooth government dealings. The sponsor shares no operational involvement but requires a higher annual fee.
These scenarios highlight that each business demands a unique sponsor type, fee structure, and legal agreement. Always customize your arrangement based on your sector, scale, and vision.
Tips for Navigating Bureaucratic Processes & Government Approvals
Securing an industrial license or commercial license in Dubai typically involves:
- DED Applications: Submit your paperwork—trade name reservations, initial approval, etc.—online or in-person at DED counters.
- Ministry of Labor & Immigration: Acquire labor quota approvals, work visas, and Emirates ID registrations.
- External Approvals: Certain industries (e.g., real estate, medical, education) may require external approvals from specialized bodies.
- Translation & Notarization: Arabic translations of contracts, documents, and MoUs may be necessary to finalize your license.
Pro Tip: Keep digital copies of all documents and track renewal dates. Bureaucratic efficiency in the UAE is generally high, but missing one required form can delay progress.
Free Zone vs. Mainland vs. Representative Office Sponsorships
- Free Zone
- 100% ownership possible, no local sponsor needed.
- Restricted to that free zone’s territory for trade.
- Great for businesses that don’t require direct dealings in the UAE mainland.
- Example: Media, tech, or e-commerce startups choosing a business setup in freezone to keep overhead low.
- Mainland
- Potentially requires local sponsor or at least a local service agent depending on the activity.
- Offers unrestricted trade across the UAE and beyond.
- Ideal for large-scale Company formation in Dubai seeking government contracts or local clientele.
- Representative Office
- Allows 100% foreign ownership but limited to marketing, research, or promotional activities.
- Needs a local service agent.
- No direct revenue generation within the UAE, so if you plan sales, this isn’t the best option.
Ensuring Compliance with Cultural & Legal Expectations
Building rapport with Emirati nationals and government entities means understanding local customs:
- Respect for Traditions: Familiarize yourself with local customs, dress codes for government visits, and official protocols.
- Arabic Translation: Important documents often require official Arabic translations.
- Timely Renewals: Renew your trade license, visas, and labor cards on time. Delays may incur fines or risk blacklisting.
- No Conflicting Activities: Ensure your actual business activities match your approved license scope; hidden or unapproved activities can cause legal troubles.
Conclusion
Securing the right local sponsor in Dubai or anywhere in the UAE mainland can unlock incredible opportunities, from seamless government approvals to deep market access. While recent legislative reforms have allowed more 100% foreign ownership, many business activities—especially those in specialized or restricted sectors—still require a UAE national or corporate sponsor.
By diligently researching sponsor types, drafting robust contracts (including Power of Attorney and Memorandum of Understanding), and staying on top of your legal obligations, you can protect your profits and maintain full control of your company. Remember, the UAE thrives on clarity and credibility: a well-chosen sponsor not only meets legal mandates but also fortifies your brand reputation in a highly competitive market.
Whether you opt for an individual local sponsor, a corporate nominee, or a local service agent, the goal is the same: set up a thriving enterprise in the heart of the UAE. Prioritizing trust, transparency, and well-structured agreements will help you flourish long-term and sidestep potential pitfalls.
Final Thoughts
- Always confirm the latest local laws and consult professional advisors for custom solutions.
- Don’t underestimate the value of a sponsor with relevant government or business connections.
- Draft or review your sponsor contracts meticulously to maintain financial security and day-to-day operational independence.
With the right partner, your mainland business in Dubai can become a launchpad for success across the entire Middle East. Here’s to building a profitable, compliant, and remarkably stable venture in one of the world’s most dynamic markets!
