Sponsorship is a pivotal and unique aspect of doing business in the United Arab Emirates (UAE). It is a legal requirement that plays a fundamental role in allowing foreign investors to operate within the country. However, before you invest in UAE, It’s essential for foreign investors to have a clear understanding of the terms and conditions with their local sponsors, outlining the roles, responsibilities, and expectations to ensure a harmonious and compliant business relationship. Find here the best consultant for a successful business setup in Shams.
Local sponsorship, also known as a local service agent or a local partner, is a key requirement for businesses in the UAE. It is particularly prominent in mainland company setups. The local sponsor is a UAE national or a company wholly owned by UAE nationals who acts as a local partner in the business.
The role of sponsorship fundamentally shapes the ownership structure of businesses in the UAE. In mainland businesses, the local sponsor is required to hold a majority share of at least 51%, while the foreign investor owns the remaining 49%.
Sponsoring is not optional; it is a legal requirement for certain types of businesses. Companies that engage in professional activities or specific commercial activities typically necessitate local sponsorship.
Local sponsors, despite holding a majority share, are generally not actively involved in the day-to-day operations of the business. Instead, they provide facilitation and compliance support to the foreign investor.
Sponsors can offer valuable insights into local business practices and regulations. They often assist with the business setup process, including license issuance and visa processing for employees.
Sponsors share certain legal and financial responsibilities with the foreign investor. However, it’s important to establish clear agreements and understand the scope of the sponsor’s involvement to mitigate risks.
The role of sponsorship in UAE business is a pivotal factor to consider when entering the market. While it is a legal requirement in certain setups, it can also be an opportunity to gain access to the local market and leverage the expertise of a local partner.