Dubai has become a popular destination for entrepreneurs and businesses looking to expand internationally. With its strategic location, business-friendly policies, and diverse economy, Dubai offers many opportunities for new ventures. However, one of the key requirements for setting up a business in Dubai is having a local sponsor. In this article, we will explore the role of a local sponsor in Dubai and how it can impact your business setup.
What is a Local Sponsor?
A local sponsor is a UAE national or a company owned by UAE nationals who acts as a partner or a sponsor for a foreign company looking to set up a business in Dubai. The local sponsor is required for all mainland business formations, where the company is allowed to operate in the local market and not just in a specific free zone.
The local sponsor is responsible for providing support and guidance to the foreign company and ensuring their compliance with local laws and regulations. In return, the sponsor receives an annual fee or a percentage of the company’s profits.
What are the Requirements for a Local Sponsor?
To be eligible to act as a local sponsor, an individual must be a UAE national, at least 21 years of age, and have a good reputation and a clean criminal record. For a company to act as a local sponsor, it must be 100% owned by UAE nationals and have a valid commercial license.
In addition, the local sponsor must not have any conflicts of interest with the foreign company. This means that the sponsor cannot have any direct or indirect stakes in the foreign company’s business activities or any other companies operating in the same sector. This requirement ensures that the local sponsor is acting in good faith and not using their position for personal gain.
What are the Responsibilities of a Local Sponsor?
The local sponsor has a few key responsibilities towards the foreign company they are sponsoring. These include:
1. Obtaining Necessary Licenses and Permits
The local sponsor is responsible for obtaining all the necessary licenses and permits for the foreign company to operate in Dubai. This includes the trade license, commercial registration, and any other approvals required for the specific business activity.
2. Acting as a Local Partner
In mainland business formations, the local sponsor is required to hold at least 51% of the shares in the company. This means that they are considered a local partner and have a say in business decisions. However, the foreign company can still have full operational and managerial control of the business.
3. Providing Local Knowledge and Expertise
A local sponsor can provide valuable insights and advice on navigating the local market and understanding cultural norms and business practices. This can be especially helpful for foreign companies looking to establish a strong presence in Dubai.
4. Ensuring Compliance with Local Laws and Regulations
The local sponsor is responsible for ensuring that the foreign company complies with all local laws and regulations. They are also required to submit annual financial statements and reports to the relevant authorities on behalf of the foreign company.
5. Renewing Licenses and Visas
The local sponsor is responsible for renewing all necessary licenses and visas for the foreign company and its employees. This includes the trade license, residence visas, and work permits.
What are the Benefits of Having a Local Sponsor?
Having a local sponsor can bring several benefits to a foreign company setting up a business in Dubai. Some of these include:
1. Local Market Knowledge and Connections
A local sponsor has a deep understanding of the local market and can provide valuable insights and connections that can help the foreign company succeed. This can be particularly helpful in establishing partnerships and finding clients or customers.
2. Compliance with Local Laws and Regulations
Navigating the legal and regulatory landscape in Dubai can be challenging for foreign companies. A local sponsor can provide guidance and ensure that the foreign company remains compliant with all necessary laws and regulations.
3. Reduced Costs
Hiring a local sponsor can help reduce the costs associated with setting up a business in Dubai. By using the sponsor’s local knowledge and connections, the foreign company may be able to save on market research, legal fees, and other expenses.
4. Faster Processing of Documents
Having a local sponsor can help expedite the process of obtaining necessary licenses and permits. They are familiar with the local procedures and can help navigate any bureaucratic hurdles that may arise.
Conclusion
In conclusion, a local sponsor plays a crucial role in the successful setup and operation of a business in Dubai. They provide local knowledge, expertise, and connections, ensuring that the foreign company remains compliant with local laws and regulations. While hiring a local sponsor is a mandatory requirement for mainland business formations, it can also be beneficial for free zone companies looking to expand their operations in the local market. Therefore, it is essential to carefully consider the selection of a local sponsor to ensure a smooth and successful business setup in Dubai.
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