First, let's look at the options for registering a company in the UAE for a foreigner, and what are the possible situations when you might need a local sponsor in the UAE.
From the point of view of jurisdictions and existing laws and regulations, the territory of the UAE can be divided into two categories: free economic zones (there are several dozens of those in the territory of the country) and a mainland. A foreign investor can register his/her business in the form of an onshore, offshore and a local company on the territory of this country. Companies of the first two types can be registered only in the territory of free zones.
An offshore company is a company registered on the territory of one of the free zones (classical offshore companies can be registered in the free zone of Jebel Ali in Dubai (JAFZA), and in the free zone of Ras Al Khaimah (RAKEZ)). This company is the optimal solution for those who plan to conduct business in other regions of the world (not in the UAE), it is completely exempt from taxes, the cost of registration and maintenance of such a company is quite low, a foreigner can completely own it.
As for the onshore company, such a company can conduct international business outside the UAE, work within its zone, open accounts in local banks, it enables to obtain resident visas to its owners and their employees, it is also completely exempt from taxes (except for VAT of 5%), can be 100% property of a foreigner and has no restrictions on the withdrawal of capital.
The companies mentioned above do not require finding a sponsor in Dubai, but they have a significant restriction – they do not allow working directly in the domestic market (onshore companies can sell goods and provide services, but only within their own zones). And if your goal is the internal market of the UAE and other countries of the GCC region, the best solution for you is to register a local company outside the free zones. And in this case, you need UAE business sponsor.
Resident companies of the UAE outside the UAE FEZ in the form of a local company
A local company is a resident company of the UAE; such a company must be registered in partnership with a local sponsor in the UAE. In case of a local partner, at least 51% of the company shares must be owned by a citizen of the Emirates (or a local UAE company).
Of all the options described above, the registration of a company in the Emirates in the form of a local company is the most expensive one. If the average cost of registration of an offshore company is about $2,000..3,000, the cost of registering a local company can be within the range of $12,000 .15,000, while the requirements for a set of documents and various checks will be much tougher. However, unlike the previous two types, the local company has no restrictions on doing business (according to the registered type of activity). For example, a local company can rent an office anywhere in the country and participate in government tenders.
If a company plans to be permanently present in the domestic market of the Emirates, then it must be registered as a local company outside the FEZs with a local sponsor in Dubai (or local sponsor in Abu Dhabi, depending on where you register the company).
How to get a sponsor in Dubai? A gift for foreign investors from the Government of the UAE
Currently, in order to conduct business in the UAE outside free zones, it is required to register a local company in the UAE. And as we have already noted, when registering such a company, a foreign investor will be able to own no more than 49% of the company's shares, the remaining 51% of shares must belong to citizens of the Emirates or a company owned by its citizens. Accordingly, all those foreign investors who plan to work in the local market face with the problem "How to get a sponsor in Dubai?"
But the good news is that soon these rules will be changed!
The UAE government announced its intention to carry out radical reforms allowing foreign investors to have 100% shares of local companies when registering them in the UAE. In addition, some investors, scientists, engineers and entrepreneurs will be able to obtain resident UAE visas for a period of 10 years (instead of present resident visas, which are issued for 2 or 3 years). Obviously, these measures will significantly increase the flow of foreign direct investment into the country. As it was noted, the new laws should come into force by the end of 2018.
Foreign investors will be able to owe companies fully, that is, 100% of the shares can belong to foreign investors. This is a very important change, because now, according to the current law, foreigners can own no more than 49% of shares in local companies, (companies that are registered outside the free zones). Such local companies require the mandatory participation of the UAE business sponsor (a citizen of the Emirates or a company owned by the citizens of the Emirates), and such local sponsor in Dubai must own at least 51% of the shares.
It should be noted that with a local sponsor in Dubai (or local sponsor in Abu Dhabi, depending on where you register the company), you can have an additional agreement, according to which this sponsor refuses to receive 51% of the profit, and get only a fixed annual remuneration. Also, in such an agreement, can set the rule according to which the local partner refuses the right to manage your company.
The benefits from the new rules introducing the possibility of 100% foreign ownership for a local company in the UAE are hard to underestimate. Thanks to future reforms, the competitiveness of the UAE on the world arena will grow, strengthening the country's role in shaping future investments in the region. The UAE will keep its role as a global incubator for talented specialist and an attractive place for foreign investors. Open environment, tolerance, infrastructure, and flexible legislation are the best incentives for attracting global investment and talented people in the UAE. The new law will help to increase transparency, due to the lack of the need to attract a third-party local sponsor in the UAE.
The advantages of 100% ownership at registration of a local UAE company
Entrepreneurs from all over the world who want to enter local markets open their offices in the UAE in free zones (where they can own business for 100%), as the need to find a sponsor in Dubai can be a potential problem.
However, not every business can work in free zones, for example, shops and restaurants should be opened in the other areas of the UAE (beyond free zones).
Accordingly, most of them open outside the free zones, by registering local UAE companies. And as we have already said, such companies are owned (at least 51% of shares) by local UAE citizens, and, of course, foreign businessmen will benefit from these new rules, since this foreign investor will be able to have all 100% shares.
Note that at the moment, while the new law has not yet entered into force, there is an alternative to registering a company in the UAE with 100% foreign ownership. So, in order to get access to the local market of the Emirates, instead of registering a local company in the UAE, you can open a branch of an existing foreign company. The branch will be 100% owned by the parent company and will be able to conduct the same activities within the UAE as that of its foreign parent company, but this option also has some limitations related to the fact that the branch office of the company is not a separate legal entity and cannot do anything that the parent company would not do.
Conclusions
If you plan to register your company in the UAE and are going to work in the local market, you have several ways how to do it. So, for example, you can register an offshore company or an onshore company and deliver goods through your partner – one of the local companies, but in this case, you will pay an import duty of 5%. Also, you can register a local company, but this will require the involvement of a local sponsor in the UAE, in addition, this sponsor will own at least 51% of your company's shares. Another way to enter the domestic market is to create a branch of the company, but such a solution has its limitations as well. And the good news is that the UAE authorities are planning to change the registration procedure for local companies, they are going to abolish the need to search for a local sponsor in the UAE.
If you want to enter the local UAE market and are looking for a solution for your business, do not hesitate to contact our specialists – business consultants. They will be glad to help you to solve your problems and come to the local market!
