Experienced entrepreneurs along with business companies select Dubai as their operational base because of its solid economy and contemporary infrastructure together with beneficial investor regulations.
However, if you are planning a mainland company formation in Dubai, you need to understand the role of a local sponsor.
A local sponsor is a UAE national (Emirati) who acts as your business partner, as UAE law requires for certain types of companies.
This blog will explain everything you need to know about local sponsors, their responsibilities, and how to choose the right one for your business setup in Dubai.
What is a Local Sponsor?
A local sponsor is an Emirati individual or a UAE-owned company that helps foreign investors establish a mainland business in Dubai.
As per UAE law, certain business activities require a local sponsor to hold at least 51% of company shares, while the foreign investor owns the remaining 49%.
However, despite this ownership structure, the foreign investor usually has full control over business operations and profits, as legal agreements are made to protect their interests.
Types of Local Sponsors in Dubai
There are three main types of local sponsors for business setup in Dubai mainland:
1. Individual Local Sponsor
- This is an Emirati national who acts as your sponsor.
- Required for commercial and industrial licenses.
- The foreign investor holds 49% ownership, while the Emirati owns 51%.
- In most cases, the local sponsor does not interfere in business operations. Instead, they receive an agreed-upon yearly fee.
2. Corporate Local Sponsor
- This is a UAE-owned company that sponsors your business instead of an individual.
- The UAE company holds 51% ownership of your business.
- Often used by large businesses and companies that prefer a more structured sponsorship model.
3. Local Service Agent (LSA)
- Required for professional service businesses like consulting, legal services, or medical practices.
- The LSA does not hold any shares in the company. Instead, they help with government paperwork and legal formalities.
- The foreign investor retains 100% ownership and pays the LSA an annual fee.
Why is a Local Sponsor Required for Mainland Business Setup?
The Department of Economic Development (DED) in Dubai mandates that certain businesses need a local sponsor for legal and regulatory reasons. Here’s why:
- Compliance with UAE Law – The law requires certain businesses to have a local sponsor to operate in the mainland.
- Government Approvals – Many government departments only process applications with a local sponsor involved.
- Access to the UAE Market – Having a mainland license allows you to trade within the UAE market without restrictions.
What Does a Local Sponsor Do?
A local sponsor’s role is mostly legal and administrative, meaning they do not get involved in day-to-day business operations. Their main responsibilities include:
- Signing legal documents and government applications as required.
- Helping obtain licenses and approvals from the DED and other authorities.
- Acting as a silent partner, allowing the foreign investor to run the business.
- Ensuring compliance with local laws and regulations.
In most cases, local sponsors charge an annual sponsorship fee for their role, which is agreed upon in advance.
How to Choose the Right Local Sponsor?
Choosing the right local sponsor is crucial for your business success. Here are some factors to consider:
1. Trust and Reliability
- The local sponsor should be someone trustworthy and professional.
- Ensure they will not interfere in daily business operations.
2. Clear Legal Agreements
- Draft a clear legal contract that outlines the terms of sponsorship.
- This contract should protect your rights and business control.
3. Reputation and Experience
- A well-connected sponsor can help in faster approvals and resolving issues.
- Choose sponsors with experience in your industry.
4. Sponsorship Fee
- Discuss and finalize an annual fee before signing any agreement.
- Make sure or check if there are no hidden charges or unexpected costs
If you are unsure how to find the right local sponsor, business setup consultants in Dubai can help. They connect you with professional sponsors who meet your requirements.
Can You Have Full Ownership of a Mainland Business?
Yes! The UAE government has introduced new laws that allow 100% foreign ownership in many sectors. As a result, businesses in industries like manufacturing, hospitality, and certain types of trading no longer require a local sponsor.
However, some industries, such as oil & gas, telecommunications, and banking, still require a local sponsor.
Steps to Set Up a Mainland Company with a Local Sponsor
If your business requires a local sponsor, here’s how to proceed:
Step 1: Select Your Business Activity
- Choose your business type (commercial, industrial, or professional).
- Check if your activity requires a local sponsor.
Step 2: Find a Suitable Local Sponsor
- Search for a reliable Emirati sponsor.
- Sign a legal agreement to ensure your rights are protected.
Step 3: Get Initial Approval
Step 4: Prepare and Submit Legal Documents
- Prepare documents like your passport copy, sponsor agreement, tenancy contract, and other required papers.
- Submit them to DED and relevant authorities.
Step 5: Obtain Your Business License
- Once approved, pay the required fees and receive your mainland business license.
- Now you can legally operate your business in Dubai!
Conclusion
Setting up a mainland company in Dubai is a great opportunity for business growth. While some businesses require a local sponsor, the right agreement ensures you have full control over your company.
Choosing a trusted sponsor and having a clear contract makes the process simple and hassle-free.
At QuickPlus Business Consultants, we specialize in business setup in Dubai and provide expert document clearing services to make the process smooth. From finding a reliable local sponsor to handling all legal formalities, we’ve got you covered. Contact us today and start your mainland company formation in Dubai with ease!