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Do You Really Need a Local Sponsor to Start Business in UAE?

local sponsor in UAE

The UAE is a prime spot for entrepreneurs and investors from all over the world. This is because of the various benefits provided by the government for investing or starting a business here.

Additionally, the new market in the UAE means that there is less competition here when trying to enter a sector. This means that the barriers to entry are very low. Moreover, the government is constantly trying to attract more foreign investment to the country.

Until recently, foreigners who wanted to start a business on the mainland needed a local sponsor to own a majority of the company. For example, if you wanted to setup a business in Dubai mainland, then you had to find a local sponsor who must own at least 51% of your company, and you could own the rest of the 49% percent.

However, the profits would not be shared in this ratio. Alternatively, you had to pay the local sponsor a small fee for enabling you to open a business here.

After some amendments to the existing laws and the addition of new laws, foreigners can now start their own business on the mainland and be the sole owner of the company. This means that a Sole Proprietorship is now a viable option in the UAE.

This is because the government of the UAE has undertaken a long-term plan of changing the economic focus of the country. As a result, they are making it easier and easier for foreigners to start a business here.

How do the free zones fit into the picture?

Even before the changes to the rules and regulations, foreigners could be the sole owner of their businesses in the UAE. However, in order to do so, they had to open their business in one of the free zones in the country.

To clarify, the free zones are independent economic jurisdictions that exist within the country. Additionally, they provide various benefits to businesses in certain sectors. For example, Dubai Healthcare City caters to the needs of businesses in the healthcare sector.

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Even though the free zones provided various benefits, they had some drawbacks as well. And one of the main drawbacks of the free zones is that they restrict the businesses within their boundaries.

This means that businesses that exist within a free zone could not sell their products or services outside the boundaries of the free zone. For example, if you started a healthcare business in Dubai Healthcare City, you cannot provide your services to clients outside the city.

As there were certain drawbacks that hindered the expansion and profitability of businesses, many investors and entrepreneurs did not want to start their businesses in the free zones. As a result, they started their businesses on the mainland with the help of local sponsors.

Availability of Local Sponsors or Local Services Agents

A business that located itself within the free zones could provide their services and sell their products outside of the free zones with the help of local services agents. However, the local services agents required annual fixed fees.

As a result, businesses lost a portion of their income to the local services agents. Additionally, they had to pay this fixed fee even if they did not make the required sales of products and services outside of the free zone.

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Another alternative was to start their business on the mainland with the help of local sponsor in Dubai and the UAE. To clarify, local sponsors were people with citizenship of the UAE, otherwise known as Emiratis.

As we have mentioned earlier, local sponsors had to own a majority of the company when you are starting out. That is why this idea was not too attractive to foreign entrepreneurs and investors as well.

What do the Recent Changes Mean?

The authorities in the UAE made some changes to their laws and legislation that took effect on 1st December of 2020. The result of these changes ensured that foreigners no longer required the assistance of local sponsors to start their businesses on the mainland.

The implications of these changes were massive, and they increased the popularity of the UAE among investors and entrepreneurs from all over the world.

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The law applied to a total of 122 permitted business activities. As a result, most of the popular business sectors were up for grabs for the foreigners looking to start their business in the UAE.

This is because the law replaced the existing Commercial Companies Law No. 2 which did not allow foreigners to own their businesses in the UAE. However, now the Foreign Direct Investment Law ensured that foreigners could start their own businesses on the mainland.

Some sectors still require foreigners to look for a local sponsor. These sectors are strategically important to the UAE. As a result, the government still requires foreigners to look for a local sponsor when starting a business in these sectors.

For example, the oil and gas industry is strategically important to the UAE and if you wanted to enter this sector, you will still require a local sponsor to own a majority of your company.

The government still requires a local sponsor or service agent for strategically important sectors because, in case of a dispute, the foreigner cannot harm the national security of the country.

This is because the majority shareholder of the company will hold the right to settle disputes through voting. As a result, the government will not let foreigners be the sole owner of businesses in these sectors.

So, do foreigners really require a local sponsor to start their businesses in the UAE? The answer depends on which sector you want to enter with your business in the UAE.

How can Company Setup Consultants help you?

If you are looking to start your own business in the UAE but do not know where to get started, then you are in the right place. This is because Company Setup Consultants have started various businesses all over the UAE and have the right skill set needed to get you off the ground. So, contact us today and hit the ground running.

To Speak with our Experienced Business Consultants for further information and assistance, call us at +971582595164. Send a WhatsApp Message for Chat Query on +971 582595164 or email us at info@companysetup.ae.

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