Local Sponsors in Dubai Company Formation: An Introduction
Local Sponsors in Dubai Company Formation are a legal requirement. While it is mandatory for specific industries, most industries are permitted to operate under 100% foreign ownership in the UAE.
In this blog, we break down the role of local sponsors in Dubai and their responsibilities. We also compare the local sponsor fees in Dubai. Learn how Business Setup Consultants in Dubai, like NNCA, can guide you through this essential process.
Who Is a Local Sponsor in Dubai?
No, a local sponsor DOES NOT invest in your company. Instead, they are the local legal representative for a foreign company.
A local sponsor is a UAE national or Emirati.
A local sponsor can also be a company. A business wholly owned by UAE nationals is legally required to hold 51% ownership ( as a sponsor) in the mainland foreign company.
Despite this ownership structure, foreign investors can retain complete control over business operations and financial matters through structured legal agreements. These agreements clearly define the roles and limitations of the local sponsor in Dubai company formation.
The good news is that recent reforms have made full foreign ownership of many sectors possible.
Read in detail How to set up the branch of a foreign company in Dubai. The A-Z
Local Sponsorship in UAE Mainland Business: A flashback
Historically, foreign investors establishing businesses in the UAE mainland were required to partner with a local sponsor:
An Emirati individual
OR
A 100% UAE-owned company that can act as a local sponsor by legally holding 51% of the shares in the said mainland company established by a foreign investor.
The UAE law traditionally mandated this integration to ensure local participation in business ownership and economic development.
Legal reforms for Local Sponsors in Dubai Company Formation have transformed this requirement: the introduction of Federal Decree-Law No. (32) of 2021 on Commercial Companies marked a pivotal shift. The law allowed for increased foreign ownership in many sectors. This law was enacted on January 2, 2022, replacing Federal Law No. 2 of 2015. The reforms aimed to increase the UAE’s competitiveness, thus attracting foreign direct investment by liberalising ownership restrictions.
A Turning Point in Local Sponsors in Dubai Company Formation - 2021–2022 Legal Amendments:
The 2021 amendments to the Commercial Companies Law introduced several key reforms:
Full Foreign Ownership Enabled:
As Foreign investors, you can now own 100% of companies in most business sectors without needing a local sponsor. The reform applies to onshore companies outside free zones, significantly broadening investment opportunities.
Sectoral Exceptions Remain:
Certain strategic sectors, including banking, insurance, and oil & gas, continue to require Emirati ownership or Corporate sponsorship due to their importance to national interests.
Silent Corporate Nominees:
In cases where local participation is still required, corporate nominees may serve as passive shareholders without involvement in daily operations or management decisions.
When is a Local Sponsors in Dubai Company Formation Required?
A local sponsor is mandatory if you set up a Limited Liability Company (LLC) on the mainland, the most common business structure for foreign investors. The following business types require a local sponsor:
- Trading and retail businesses that require import/export licenses.
- Manufacturing and industrial firms operating within Dubai’s mainland.
- Specific specialised sectors are governed by UAE commercial law.
It’s important to note that while many sectors have whole foreign ownership permits, some strategic sectors still require local participation. These include:
Oil exploration and production.
Security and military services.
Banking, finance, and insurance.
Water and electricity provision.
Fishing and related services.
Postal and telecom services.
Road and air transport.
Printing and publishing.
Commercial agency.
Medical retail (including pharmacies).
Do you want to know more on company formation? Read our blog
When is a Local Sponsor NOT Required?
Under the new legal framework, specific business structures and sectors no longer require a local sponsor:
Free Zone Companies:
Businesses established in designated free zones can enjoy 100% foreign ownership in the UAE without needing a local sponsor.
Professional Service Providers:
Consultants, legal firms, and other professional services can operate with a local service agent instead of a sponsor. The agent does not hold any shares in the company.
Businesses under the UAE's Foreign Direct Investment (FDI) Law:
Certain sectors approved under the FDI Law allow full foreign ownership.
Types of Local Sponsorship in Dubai
The role of local sponsors in Dubai varies according to the types of sponsors. Each type of sponsorship is a model that aligns with various sectors and the company structure. And, with each type, the local sponsor fees in Dubai vary. You need to understand the different kinds of sponsorship to help in aligning with the right sponsors:
Individual Local Sponsor (UAE National)
This model involves an Emirati individual who serves as the local sponsor. These sponsors typically act as silent partners without direct involvement in business operations.
Key Considerations:
- The sponsor is legally recognised as the majority shareholder (51%) but does not interfere in daily management.
- Investors must draft a side agreement to secure financial and operational control.
- Some sponsors charge fixed annual fees, while others negotiate profit-sharing arrangements.
Corporate Sponsorship (LLC or Holding Company)
Under this model, an entirely UAE-owned company acts as the sponsor instead of an individual Emirati. Corporate sponsors provide a more structured, legally secure option for foreign investors.
Key Benefits:
- The corporate sponsor follows defined legal agreements that protect the foreign investor’s rights.
- There is greater stability and predictability than with an individual sponsor.
- Corporate sponsorships reduce the risks of ownership disputes and facilitate easier contract negotiations.
Local Service Agent (For Professional Licenses)
In the realm of Local sponsors in Dubai company formation, this model applies to professional services businesses (e.g., consulting firms, legal practices, medical services), where a local agent acts as a representative but does not own shares.
Key Differences:
- The local agent only facilitates licensing and government approvals.
- The foreign investor retains 100% ownership and complete operational control.
- The service agents receive a fixed annual fee with no profit-sharing obligations.
Role of Local Sponsors in Dubai: Legal and Practical Responsibilities
The role of local sponsors in Dubai is not limited to just “paperwork”. While they may not always be involved in your day-to-day operations, their presence is legally binding and influential in your company’s compliance and renewal procedures.
Key Responsibilities of a Local Sponsor:
- License and Permit Applications: Required to process trade licenses and government documents.
- Representation: Acts as a liaison with government departments and ministries.
- Shareholding: Holds 51% legal ownership in LLCs unless exempted.
- Exit Strategy Support: Assists in changes such as company liquidation or license transfers.
Risks and Protections:
- Foreign entrepreneurs often enter into side agreements defining control, profit sharing, and liability.
- Legal contracts vetted by Business Setup Consultants in Dubai are essential to avoid misuse of authority.
Local Sponsor Cost Breakdown of Business Setup in Dubai in 2025
Local sponsor fees in Dubai depend on business activity, risk level, and sponsor reputation. Below is an approximate cost comparison for different sponsorship models:
| Sponsorship Type | Estimated Cost (AED/Year) | Fee Structure |
|---|---|---|
| Individual Sponsor | 10,000 – 25,000 | Fixed annual fee |
| Corporate Sponsor | 30,000 – 100,000 | Negotiated contract |
| Local Service Agent | 8,000 – 10,000 | Fixed fee, no ownership |
Reduce your costs! Read our blog on How to outsource payroll & get quality help with employee wages
Fixed-Fee vs. Profit-Sharing Sponsorship
Foreign investors typically encounter two primary sponsorship models when choosing local sponsors in Dubai company formation: fixed-fee and profit-sharing. Understanding these structures’ differences is essential, as they directly affect financial obligations, legal clarity, and operational control. Here’s a brief overview of each model’s work and what to consider.
Fixed-Fee Sponsorship:
The local sponsor receives a pre-agreed annual payment without interference in profits or operations. This model provides legal clarity and financial predictability.
Profit-Sharing Model:
The sponsor receives a percentage of business profits. This arrangement can lead to ownership disputes and unexpected financial obligations.
Most experienced business consultants in Dubai recommend a fixed-fee structure to ensure long-term stability and minimise risks.
Business Type & Risk:
High-risk sectors may require higher compensation.
Sponsor's Influence:
Established sponsors with strong government ties may charge more.
Contractual Clauses:
Some sponsors offer exclusive rights or office space as part of a premium package.
Hidden costs or vague terms can lead to legal disputes; hence, ensure the fee is well-documented in your Memorandum of Association (Moa) or sponsorship agreement.
Can You Change Your Local Sponsors in Dubai Company Formation?
Yes, you can. However, the process involves legal documentation, court notarisation, and amendments in the Department of Economic Development (DED) and immigration records. It is advisable to seek professional help when making such transitions.
Present-Day Best Practices for Foreign Business Owners
To protect your company from manipulation and unnecessary legal complications, the following are the key restraints that new businesses of foreign investment should practice:
Conduct Thorough Background Checks:
If your business falls into a sector that still requires a local sponsor, such as insurance, oil and gas, or banking, don’t rush into an agreement. Verify that the sponsor is a UAE national or a 100% UAE-owned company. Review their legal records, business history, and experience with other foreign investors.
For example, if you’re launching a retail operation, choose a sponsor with a track record in the retail sector and a clean legal background.
Hire Qualified Legal or Business Advisors:
Work with UAE-based legal or business professionals specialising in commercial law and sponsorship agreements. We can help you draft clear contracts that protect your rights, define the sponsor’s role, and prevent future disputes. For instance, we can ensure that your agreement includes clauses confirming that you retain complete business financial and operational control.
Keep Up with Law and Policy Updates:
UAE business regulations are dynamic. Changes like the 2021 Commercial Companies Law drastically altered foreign ownership rules. By regularly consulting with legal advisors or business consultants, you can stay ahead of shifts in law, such as new sectors open to 100% foreign ownership and adjust your strategy accordingly.
Adhering to these practices will protect the interests of foreign investors partnering with local sponsors in Dubai Company Formation.
We also suggest you read: Corporate Tax for Foreign Companies with Permanent Establishment: Explained
How to Find a Reliable Local Sponsor
Choosing the right local sponsor is crucial for long-term business success. An unreliable sponsor can lead to legal complications, financial risks, and loss of operational control. Below are key steps to ensure you select the right sponsor.
Background Check & Legal Verification
- Verify the sponsor’s Emirati nationality with official documents (e.g., UAE passport, Emirates ID).
- Ensure they have no financial liabilities or ongoing legal disputes.
- Check if they have prior experience sponsoring businesses in your industry.
- Research reviews or testimonials from other companies that have worked with them.
Key Questions to Ask Before Signing an Agreement
- Does the sponsor understand the industry and business operations? Do they know the role of a local sponsor in Dubai?
- Are they willing to sign a legally binding side agreement confirming that complete control remains with the foreign investor?
- What is the typical local sponsor fees in Dubai? Do they prefer a fixed-fee model or a profit-sharing agreement?
- What is their track record with other foreign investors?
Common Red Flags to Avoid
- Sponsors who REFUSE to sign legally enforceable agreements.
- Unrealistically LOW SPONSORSHIP FEES, which may indicate hidden risks or future demands.
- LACK OF TRANSPARENCY in contract terms, particularly regarding exit clauses and ownership rights.
How Business Setup Consultants simplify the local sponsors in Dubai company formation process
Setting up a business in a global hub like the UAE is equally profitable and complicated. Analysing sponsor agreements, legal drafts, and governmental red tape isn’t easy. That’s where Business Setup Consultants in Dubai, like us, NNCA, step in:
Sponsor Matching Services:
We connect you with reliable, vetted UAE nationals or corporate sponsors.
Custom Legal Agreements:
We protect your control, profit-sharing, and liability terms.
Regulatory Compliance:
Our experts handle all documentation, license applications, and renewals.
Post-Setup Support:
From PRO services to annual auditing, NNCA supports your business growth
Ready to form your mainland company? Contact NNCA—your trusted business setup consultant in Dubai.
