Is it mandatory to have a local sponsor for business setup in Dubai?

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Setting up a business in Dubai presents a unique blend of opportunities and considerations for entrepreneurs worldwide. One of the critical aspects to understand when planning to establish a business in Dubai is the requirement of a local sponsor. This detailed analysis explores whether it is mandatory to have a local sponsor for business setup in Dubai, examining the legal framework, benefits, drawbacks, and alternatives.

Legal Framework and Requirements

Dubai operates under the United Arab Emirates (UAE) commercial laws, which historically mandated that any foreign investor wishing to set up a business in the mainland required a local sponsor. A local sponsor is a UAE national (Emirati) who acts as a service agent for your business if it’s a professional license or holds 51% of the shares if it’s a commercial license, effectively giving them majority control over the business. This requirement was rooted in the government’s intent to ensure that the local population benefits from foreign investments and businesses operating in the region. However, in recent years, the UAE government has introduced significant reforms to make the country more attractive to foreign investors and entrepreneurs. One of the landmark changes came in 2020 when the UAE announced a new Commercial Companies Law, allowing 100% foreign ownership of companies in mainland Dubai across various sectors, a move away from the traditional requirement of having a local sponsor holding the majority stake.

Sectors and Activities

Despite these reforms, the requirement for a local sponsor is not entirely abolished. It is subject to the type of business activity and the sector in which the company operates. Certain strategic and sensitive sectors, such as oil and gas, utilities, and transportation, may still require a local sponsor or have specific restrictions on foreign ownership. Therefore, it’s crucial for entrepreneurs to understand the nuances of these regulations and identify whether their intended business activity falls within a sector that allows 100% foreign ownership or if it still requires a local sponsor.

Benefits of Having a Local Sponsor

  1. Navigating Bureaucracy: A local sponsor can navigate the local legal and business landscape more effectively, helping to expedite business registration processes, obtain necessary licenses, and comply with local regulations.
  2. Access to Local Knowledge and Networks: Local sponsors bring invaluable local market insights, connections, and expertise, potentially opening doors that might otherwise remain closed to foreign entrepreneurs.
  3. Operational Ease: Having a local sponsor can facilitate smoother operations, especially in dealing with government contracts and projects that often require a local presence.

Drawbacks of Having a Local Sponsor

  1. Control and Profit Sharing: The traditional model of local sponsorship meant relinquishing control over 51% of the business to the local sponsor, posing potential risks to decision-making and profit allocation.
  2. Dependency: Relying on a local sponsor can sometimes lead to operational and strategic dependency, limiting the foreign entrepreneur’s ability to operate independently.
  3. Cost: Engaging a local sponsor entails financial costs, which can be significant depending on the agreement terms.

Alternatives and Solutions

  1. Free Zones: Dubai and the UAE offer more than 40 free zones, where foreign entrepreneurs can retain 100% ownership of their business without a local sponsor. Free zones are designed to encourage foreign investment and offer benefits like tax exemptions, repatriation of profits, and no import or export duties.
  2. Professional Licenses: For certain professional services, entrepreneurs can set up their business with 100% foreign ownership and appoint a local service agent instead of a sponsor. While the agent facilitates licensing and compliance, they do not have a stake in the business.
  3. Strategic Partnership: Instead of traditional sponsorship, forming a strategic partnership with a UAE national can provide the benefits of local knowledge and networks without the drawbacks of losing control over the business.

What types of business structures can be established in Dubai?

Dubai, a global business hub, offers a variety of business structures catering to the diverse needs of investors and entrepreneurs. These structures are designed to accommodate different business models and investor preferences, offering flexibility and strategic advantages. Here are the main types of business structures that can be established in Dubai:
  1. Sole Proprietorship: This structure allows an individual to own and operate a business. It’s suitable for small-scale businesses and offers complete control to the owner. However, the owner is personally liable for the business’s debts and obligations.
  2. Partnership: This involves two or more individuals or entities coming together to conduct business. Partnerships in Dubai are mainly of two types: General Partnerships, where all partners share unlimited liability, and Limited Partnerships, where at least one partner has unlimited liability while the others have limited liability.
  3. Limited Liability Company (LLC): An LLC is one of the most common business structures in Dubai. It requires a minimum of two and a maximum of 50 shareholders, where the liability of each shareholder is limited to their share in the capital. This structure allows for a wide range of business activities and offers a flexible management setup.
  4. Free Zone Company: Dubai’s Free Zones offer 100% foreign ownership, full repatriation of profits and capital, and tax exemptions. Each Free Zone is dedicated to specific business activities, and companies established here must operate within those activities. Free Zone entities are suitable for international business operations.
  5. Offshore Company: Offshore companies are established in jurisdictions offering tax neutrality and confidentiality of ownership. In Dubai, offshore companies are ideal for international trading, asset protection, and tax planning. They are not licensed to operate within the UAE but can own real estate in designated areas.
  6. Branch or Representative Offices: Foreign companies can establish their presence in Dubai through Branch or Representative Offices. While Branch Offices can perform contracts and conduct business within the UAE, Representative Offices are limited to promotional activities for the parent company’s business.
  7. Public Joint Stock Company (PJSC) and Private Joint Stock Company (PrJSC): These structures are designed for large-scale businesses, allowing them to raise capital through public or private shareholding. PJSCs are eligible to list their shares on the UAE stock exchanges, subject to meeting regulatory requirements.
Choosing the right business structure in Dubai involves considering factors such as the type of business activity, ownership preferences, tax implications, and the level of regulatory compliance. Each structure offers distinct advantages and limitations, making it crucial for investors to thoroughly assess their business needs and objectives before making a decision.


The requirement for a local sponsor in Dubai is nuanced and depends on the specific business activity and sector. With the recent legal reforms, the UAE has significantly liberalized its approach, allowing for 100% foreign ownership in many sectors. However, understanding the legal landscape, the specific requirements for your business sector, and the potential benefits and drawbacks of having a local sponsor is crucial. Entrepreneurs should consider all options, including free zones and professional licenses, to make an informed decision that aligns with their business goals and operational needs. In summary, while not universally mandatory, the need for a local sponsor in Dubai varies, offering flexibility and opportunities for foreign investors to navigate the vibrant and dynamic business environment of Dubai.     Click here to visit website

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