There exists a lot of confusion on different types of companies that can be set up in UAE by foreign entrepreneur. There is also complexity about the need of UAE local sponsor to start a business.
So, do you really need UAE citizen as Local Sponsor?
Okay. Now, the answer depends on the type of business you choose to set up and whether it will be based on UAE mainland or free zone. These are the two key factors that determines whether there is a need of sponsor to start a business.
Local sponsor is a compulsory requirement if a foreign entrepreneur wish to establish his business in the UAE mainland. The sponsor should be a UAE national. But this is not in the case with free zones. If the business is to be set up in the UAE mainland, then the 51% of business will be owned by the local sponsor. They are paid a sponsor fee which is agreed when the business is set up.
So if any entrepreneur is planning to setup business in UAE then it is important to know about the procedures. Business can be setup in UAE mainland through Individual Sponsorship, Corporate sponsorship, Local Service Agent.
Individual Sponsorship: From the name we can guess what is individual sponsorship. This is when an individual UAE national sponsors and he/she holds 51% share of your business. This individual must be above 21 years old and can be a male or female and may or may not run business in your same field. But this individual sponsor must either be a professional or a UAE government employee or a businessman.
But in this type of sponsorship there is another important option. The sponsor can hand over the power of attorney and hence the full control of the business to the foreign entrepreneur and ask for fixed annual sponsor fee.
Corporate Sponsorship: This is similar to the individual sponsorship but here sponsor is the UAE national company. And they hold the 51% share of your business.
Local Service Agent: A local service agent is required when a professional say doctor, engineer or accountant wishes to establish their business in UAE offering their expert professional service. The agent will represent the company in all the administrative works and deals with the government officials and Ministries on behalf of the company. They do not hold 51% share of your business, instead is paid an annual fixed fee. It can vary depending on their activities or services they contribute to the business.
The option for the foreign entrepreneur to completely own the share of their business is to set up business in free zones.
Free zones: This is the best option for the foreign entrepreneur to own complete share of their business. Free zones are the area in UAE that is offered the advantage in setting up a business with 100% expatriate ownership and complete personal and corporate tax exemption. And also complete repatriation of capital and profits.
Professional Services Licence: This is the only option for foreign entrepreneur to set up business outside free zone and owns 100% of the business. Professional services licence is provided to the service providers and professional service business. As they do not require local sponsor, they are set up through national agent who receives a fee but do not own any percentage share of the business.
LLCs: Business that is either commercial or industrial licence and wish to trade locally including retail/trade business must form LLC. And there are less number of limitations to the types of business that be setup by LLCs with the exception of banking, insurance and investment but at least 51% owned by UAE national. But the profits are not shared.
So now, do you need a sponsor?
The answer is NO, but if you do not meet the requirements for a professional service licence and want to do business directly with the local UAE market then having a sponsor will be your best option.