Setting up a business entity in the UAE requires local sponsorship, unless establishing a free zone company. However, it is important to understand the requirements and limitations of free zone companies and determine whether it is less or more advantageous for your needs.

The three types of local sponsorship include; corporate sponsorship, individual sponsorship and the association with a local service agent.

Corporate Sponsorship – When a UAE national company sponsored/owned by an Emirate corporation holds 51% of the shares of a company partnered with an individual or group of partners of foreign origin. In this case, the business is sponsored by a company, rather than an individual.

It is a myth that the local sponsor will share only the company’s profits; it is accountable for all the actions.

When is this setup advantageous? – When setting up a limited liability company, a trading or manufacturing company.

Individual Sponsorship – When an Emirati national in his/her individual capacity becomes your sponsor, it is not necessary that he/she is also operating a business in the same domain. The individual may be a professional in either the public or private sector.

In this type of sponsorship, the Emirati will also hold a 51% share and liability of the company and he/she can hand over power of attorney to the foreign partner and ask for a fixed annual fee.

When is this setup advantageous? – When establishing a trading company or limited liability company.

Local Service Agent Sponsorship – When a professional – a doctor, an engineer, attorney or an artisan wants to set up their business by offering professional expertise, you will require to appoint a local service agent. This agent will act as a representative of the company in all administrative dealings with government departments (for immigration and ministry of labor formalities). He/she will not hold a 51 per cent share of your company.

The remuneration of the agent is normally agreed on as an annual fixed fee basis, and is a matter of commercial agreement. The fee can vary depending on the social and family prominence of the service agent and the precise contribution he/she makes to the business.

When is this setup advantageous? – A local service agent can be appointed for the following cases –

• professional licenses
• performing functions to set up a branch of foreign companies
• representation of offices to government agencies in UAE