August 30, 2016
Business Setup Advice from CREATIVE ZONE, Dubai – Why Choose Local Sponsorship?
The Business environment is looking good in Dubai. Well recognized as an incubation hub for business innovation, Dubai offers entrepreneurs, start-ups and global companies a stable, strategic location, a solid transport and trading infrastructure, as well as laws that embolden tax-free trade and inward foreign investment and trade.
Most recently the UAE was appointed an enviable position within the top 5 of the Asia-Pacific and Middle East regions as a ‘safe place to conduct business’ by the Pinkerton Risk Index Report. With Business Confidence up 7.4 points this last quarter, it is not surprising there have been considerably more new trade licenses issued, rather than licenses cancelled in the same period. Dubai Statistics Center announced "commercial licenses came first in terms of number, recording 6478 licenses between January and May 2016, whereas the total number of professional licenses was 2641".
While the city offers ease of trade, local sponsorship in Dubai is a mandatory condition for foreign investors who wish to conduct their business transactions throughout the UAE mainland. This condition doesn’t apply to Free Zones.
A Department of Economic Development (DED) License offers many favorable features:
- Flexibility to do business in any part of the UAE with local and government authorities,
- No limit on number of visas(depending on the size of the office space),
- Office premises anywhere in mainland Dubai,
- More options on business activities,
- Fewer nationality restrictions in ownership and visas compared to other jurisdictions.
Based on location and business activity, local sponsorship in Dubai is classified into three categories;
Corporate sponsorship: Deemed to be the most common form of local sponsorship in Dubai, Corporate sponsorship comes into effect when a UAE national company owned by Emiratis (Locals) holds 51 per cent of the share and obligations of an organization that belongs to an individual or group of foreign investors. In this type of sponsorship, the business is sponsored by a company, rather than an individual.
Individual sponsorship: Individual sponsorship is another type of local sponsorship in Dubai. This sponsorship comes into effect when an Emirati national in his/her individual capacity becomes your sponsor. While the Emirati will hold a 51 per cent share and a 51 per cent liability of the company, the Emirati sponsor can hand over the power of attorney to the foreign partner in return for a fixed annual fee.
Local Service Agent: A sponsorship by a local service agent is another significant local sponsorship in Dubai. Created for professionals as doctors, artisans or engineers, this type of sponsorship just requires the professional to appoint a local service agent. The agent is paid an annual fixed remuneration that doesn’t hold a 51 per cent share in your company.
Local Partners - Companies Vs Individuals
When setting up a local company as per the UAE Companies Law and UAE Civil Law, the expatriate shareholders are required to nominate a local service agent or a partner (which are often called sponsors) when establishing a company. In the case of a Limited Liability Company LLC (i.e Commercial Trading entity) the local partner must hold the majority equity share holding of 51% or more. We at CREATIVE ZONE differ as we can now offer that local partner service as a 'corporate nominee partner or entity' rather than an individual UAE national. Therefore the shareholding of the 51% falls under this new entity CREATIVE ZONE General Trading LLC, rather than a local individual.
The main benefits of local partner being a company and not an individual are firstly you are taking out the emotional relationship of dealing with an individual, from both sides of the relationship. So as a corporate nominee partner the foreign company is complying with UAE Companies Law and you deal with a corporate entity with a structured board and a power of attorney over this company, rather than a local individual.
So from a corporate governance perspective, for transparency and so forth, this adds a number of benefits to the foreign party, not least of which is succession planning. Companies often worried about coming into the market and selecting a local partner and then wondering what would happen if the local partner were to die or change his mind. With a corporate entity, the contractual terms remain in place, so it gives more rigidity to the arrangement than having an individual national being the local partner.