All you need to know about local sponsorship

Business setup in Dubai

The UAE is the main attraction for businessmen from all around the world. The ease of doing business in the country is getting better with every passing year. The country’s lenient tax laws attract a lot of foreign entrepreneurs. A new business setup in Dubai is very welcoming and attractive.

Previously the UAE did not allow foreigners to own 100% of any business on the mainland. However, the free zones allowed 100% ownership of businesses to foreigners. That was the main attraction of the free zones in Dubai, and also all over the country. Entrepreneurs from all over the world flocked to Dubai to reap the many benefits of these free zones. The mainland was still a bit unattractive to foreigners because they could not own more than 49% of any business there. Even if the foreigner founded a company, still he needed a local sponsor to own the rest 51% of his own company.

What changed?

After some changes to the laws and legislation, this is no longer the case. On 16th November of 2020, the authorities of the UAE announced a few amendments. These amendments would allow foreigners to own 100% of most businesses even on the mainland. Some of the strategically important sectors like transportation, oil, and gas, etc. still cannot be 100% owned by foreigners.

Most of the amendments and changes were made to the UAE Federal Law of 2015 that addressed commercial companies. These changes were made with the objective to make the UAE even more attractive for foreign entrepreneurs and investors. The government wants to make the UAE less dependent on oil income. So, with these amendments, they mean to relax regulations and increase foreign investment in the country.

By not allowing foreign ownership in the oil sector, they are ensuring that foreign investments are diversifying the country’s economy. The authorities believed that since the UAE has no long-term tenure, foreigners were dependent on short-term visas. To counteract this, they also introduced a 10-year residence visa. With this long-term visa and 100% ownership of their businesses, entrepreneurs will be more confident to set up and grow their business in the UAE.

Businesses that already exist in the UAE that wish to retain 100% ownership need to apply for permission to do so. Since 100% ownership is not permitted in all industries, this permission can still be denied.

Local sponsors in the UAE

The sectors and industries that do not allow foreign ownership can still accommodate business setup with a local sponsor. The process of finding a local sponsor in the UAE is pretty easy even if you do not have any previous network or connections here. There are certain benefits of having a local sponsor as well. For example, when you are in a new neighborhood, the expertise and local knowledge of the Emirati sponsor will come in handy.

However, the does not mean any business setup with a local sponsor has smooth sailing all the way. It is important that foreigners who are new to the country get to know the lay of the land and the people in it. Before selecting a sponsor to work with, you should get to know them on a personal level. You get references from other people who have worked with the particular local sponsor you have in mind. Take their experience into account and the reputation they have in the locality as well.

After you have selected a particular sponsor to work with, you should consider several other things before finalizing the deal with them. Things tend to get ugly when the business starts to gain revenue. That is why you need to ensure each party is clear on what they can and cannot expect from the arrangement. It is of utmost importance that you and the sponsor are clear and transparent on all the fees.

Staying safe behind legal documents

Even though cases of local sponsors trying to claim ownership of the business by asserting dominance are uncommon, they still happen from time to time when the business really kicks off. That is why it pays to set legally binding documents early on into the business setup. You need to make it clear who has to bear the responsibility of decision-making. Even if the local sponsor you select says that they have no interest in decision making, make sure you get the details in a contract. Their interests may change when the business kicks off.

You need to ensure that an exit plan for both of the parties is written down in the contract. An exit plan is necessary because as the recent pandemic has proven, long-term plans can change at any moment. You may need to sell your business and return to your home country at any moment. Or your sponsor may decide to move on to other roles. They may pass away or decide to retire. What happens then? You need to set these things in the contract before hands or face expensive setbacks down the road.

All these reasons make it paramount that you set things clearly in legally binding contracts. Ensure all your conditions and your sponsor’s conditions align and are also written down. When all your intentions are safeguarded, you can rest assured that things will go according to the plan. It is always the safer route to take advice from experts before selecting a sponsor.

Industries that do not allow 100% ownership to foreigners

These are some of the sectors and industries in the UAE that does not allow 100% ownership to foreigners:

  • Oil exploration and production industry.
  • Pilgrimage and Umrah services industry.
  • Water and electricity providing industry.
  • Road and air transport sector.
  • Printing and publishing industry.
  • Pharmaceutical and medical retail.
  • Banking and financial sector.
  • Insurance industry.
  • Military and weapons manufacturing industry.

You can still own a business in these sectors when sharing ownership with a local sponsor in the UAE.

The bottom line

It is suggested that you seek consultations from company and business setup professionals when looking for a local sponsor. They will help you clear any confusion you might have regarding ownership of businesses in the UAE. They also have the necessary connections in the locality to ensure you find the right local sponsor for your business.