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Company Formation in Dubai: Local Service Agent vs. Local Sponsor
Dubai is one of the most favorable business destinations worldwide. Every year, Dubai attracts many foreign investors and entrepreneurs. Many foreign investors would like to start or expand their business in Dubai and take advantage of the country’s growing economy and supportive regulations. Easy and fast company registration is encouraged and supported by the government. One of the concerns that can make entrepreneurs hesitate is cooperating with a Local Service Agent (LSA) or local sponsor. These are the two options offered by the government, as cooperating with either is mandatory for running a business in Dubai Mainland. Choose UAE simplifies this process by matching you with the right partner and ensuring a smooth, compliant setup.
There is a major difference between a local service agent and a local sponsor. A local sponsor would hold at least 51% of the company shares. But the local service agent will not have any shares of the company; thus, the foreign business manager can own the business 100%. A local service agent can be paid an annual fee starting from AED 6,000 and represent the company or business for the government-related tasks and paperwork. The choice between the local service agent and a local sponsor can be made based on the type of trade license issued.Â
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There are more points to consider regarding cooperating with a local partner who owns the majority of the company’s shares:
- Having a local sponsor means an Emirati national will be a partner in your business, holding 51% of the company shares and, in some cases, the profits,
- A local sponsor, in a majority of cases, will sign an agreement in return for an annual fee whereby they forfeit the rights of involvement in the operation of the business,
- Company profits will not be in the name of the local partner but in the name of the company,
- A local sponsor can often support key introductions and use their connections to support a business with facilitating running the business,
- Foreign shareholders can still benefit from tax and repatriation benefits if they opt for a license that requires a local sponsor.
Finding a local service agent or a local sponsor can be facilitated significantly if you seek advice from a business setup consultant in Dubai who is familiar with businessmen who can partner with foreign entrepreneurs.
Mainland licenses that require cooperating with local partners and local service agents
Generally, there are three categories of licenses in mainland Dubai that require a local sponsor or a local service agent. Cooperating with a local sponsor or a local service agent mainly depends on the category and respective activities associated with the license. The three license categories are Professional, Commercial, and Industrial.Â
A professional license covers activities related to services and the exchange of knowledge. Professional activities include businesses such as salons, consultancy, restaurants, and accounting. These licenses can be established using a Local Service Agent (LSA).
A commercial license covers activities related to trading and the exchange of goods. This includes general trading, rental services, and car dealership activities, among others. Commercial licenses typically require working with a local sponsor.
An industrial license covers manufacturing and industrial-related activities. It is most suitable for industries involved in food production, manufacturing, fabrication, and other industrial operations. Like commercial licenses, industrial licenses also require a local sponsor for mainland business operations.
It is also noteworthy that a local service agent or sponsor is of a specific gender. For example, for setting up a nursery, a female sponsor is required.Â
How Can Choose UAE Help
At Choose UAE, we specialize in guiding foreign investors through the intricacies of establishing a business in Dubai, offering expert advice on whether a Local Service Agent (LSA) or a local sponsor best suits your company’s needs. Our comprehensive services include clarifying the differences between these partnerships, assisting in the selection process, and ensuring your business complies with Dubai’s licensing requirements. With Choose UAE, you also benefit from support in company registration, residence visa processing, corporate bank account opening, and PRO services, ensuring your company setup and operation is as seamless and successful as possible.
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