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 their business or expand their business in Dubai and take advantage of the country’s favorable tax regimes, growing economy. Easy and fast company registration is put in force and supported by the government. One of the issues that make entrepreneurs hesitate to start their business in Dubai is cooperating with a local service agent or local sponsor. These are the two options offered by the government, as cooperating with a local sponsor or local service agent is mandatory for running a business in Dubai Mainland. 

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. 

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. 

• A professional license covers activities related to services and the exchange of knowledge. Professional activities license cover business activities associated with salons, consultancy, restaurants, and accounting (as few examples). Professional licenses can be established using a local service agent.
• A commercial license covers activities pertaining to trading and the exchange of goods. Commercial activities license includes general trading, rental and car dealerships activities, etc. Commercial licenses require working with a local sponsor.
• An industrial license covers activities pertaining to manufacturing and industrial activities. Industrial activities licenses are most suitable for industries associated with food production, manufacturing, Industrial, and fabrication. Industrial licenses require a local sponsor.

It is also noteworthy that a local service agent or sponsor to be of a specific gender. For example, for setting up a nursery, a female sponsor is required.