9 June, 2020
How Relevant is Business Sponsorship in 2020
Each year, foreign investors, entrepreneurs and businessmen establish companies in UAE and quite often they get their business setup done in Dubai. In some cases, the jurisdiction is a free zone and in some cases, the jurisdiction is Dubai mainland. For certain sectors, the mainland business setup is mandatory, such as the construction business.
As per the UAE Government laws, mainland businesses are required to have local sponsorship for their business to legally operate. While some types of business do not require the corporate sponsor on their trade license, they would still require a local service agent to freely operate their business. Those businesses that should have a business sponsorship, must necessarily have the local sponsor owning 51% of the business.
So how does this work? Why should a new business give away 51% of their business?
Difference between Local Sponsorship and Local Service Agent
The UAE commercial companies law mandates that any business operating in the mainland of Dubai be either associated with a corporate sponsor or a local service agent. The local sponsorship is associated with businesses operating in certain types of activities such as trading or real estate, and the law mandates that the local sponsor be a holder of 51% of the business (hence the interchangeable term of “local business partner”). However, if the activities are related to any consulting services, then the business will be associated with a local service agent.
The local sponsorship means that the trade license will show 51% ownership in the business by the business partner. But a professional business setup and PRO service company like CBS can ensure that one can sign side agreements with the local sponsor so that the corporate sponsor can take a lump sum annual fee and not be involved in operations of the business or its associated profits. In our case, the local sponsor is our own business entity (corporate sponsorship).
In the case of a local service agent, there will be an annual service fee payable to the service agent by the business.
Advantages of Corporate Sponsor in Dubai
The corporate sponsor is a valuable asset to businesses, and often the right business partnership can help a business achieve diverse and large levels of growth. Some major advantages of a corporate sponsor in Dubai are
- Business development through their network
- Ability to bid for key tenders or business deals
- High-level networking with key people
- First-hand and authentic information source for vital Government news
- Access to key meetings, seminars, conferences (sometimes on priority)
- Ability to enter important business councils or business groups
- More visibility in the media through a local sponsor
- Your business develops trust in the minds of other local businesses
- Local market experience and expertise
- Who is a Business Sponsor?
A business sponsor or local sponsor or local business partner is either an Emirati individual (individual sponsor) or Emirati business entity (corporate sponsor) who is mandated by the UAE commercial companies law to hold a 51% ownership in your mainland business (applicable for some legal forms and business activities)
- Will the Business Sponsor Own the Company?
In some cases, the business may choose to let the local sponsor own 51% of the business and take an active involvement. But aside agreement (internal agreement) between the business owner and local business partner can ensure that the corporate sponsor can take a lumpsum amount and not necessarily own a share in profits
- Do all types of Businesses Require a Local Business Partnership?
No. Only mainland businesses that belong to commercial and industrial license types are mandated to have a business partner. All free zone businesses do not have a local sponsor. Even mainland businesses that operate in professional licenses do not have a business sponsor. However, in order to check if your license activity and license type mandate a local business partner, do reach out to professional business setup companies like ours.
For further details on setting up your business in mainland Dubai with your business partner adding value to your business, do reach out to our team of business setup experts.
Do check out the business opportunities in UAE!