For many years, the question of whether business setup in Dubai requires a local sponsor was a significant point of consideration, and often a barrier, for foreign investors. Traditionally, to establish a company on the Dubai mainland, a foreign investor was required to partner with a UAE national who would hold 51% of the company’s shares. This requirement, though structured to ensure local participation, often led to concerns about control and profit-sharing among international entrepreneurs. However, the landscape of business ownership in Dubai has undergone significant reforms, making it far more welcoming for foreign investors.
Key Takeaways:
- The long-standing requirement for a local Emirati sponsor for business setup in Dubai on the mainland has largely been abolished.
- Foreigners can now achieve 100% ownership of their mainland companies for most business activities.
- Free Zones have always offered 100% foreign ownership and continue to be popular for international ventures.
- The 2021 amendments to the UAE Commercial Companies Law were instrumental in allowing full foreign ownership.
- Certain strategic sectors may still have ownership restrictions, but these are limited.
- SPC Free Zone in Dubai is a prime example of a jurisdiction offering 100% foreign ownership and flexible business setup options.
- The need for a local service agent still exists for professional licenses in some mainland scenarios, but this differs from a sponsor’s ownership stake.
The Historic Role of the Local Sponsor in Business setup in Dubai
Before the recent legislative changes, the UAE Commercial Companies Law mandated that any mainland company established by a foreign investor be a Limited Liability Company (LLC) where a minimum of 51% of the shares were held by a UAE national or a company wholly owned by UAE nationals. This individual or entity was known as the local sponsor or local partner.
The purpose of this requirement was to ensure local participation in the economy and to facilitate the business’s integration into the local market and regulatory framework. While the local sponsor held the majority ownership on paper, foreign investors often entered into side agreements or nominee agreements to maintain full operational and financial control. These agreements, though legally binding, could sometimes add layers of complexity and potential risks for foreign entrepreneurs.
For professional license activities (e.g., consultancies, law firms), the requirement was for a Local Service Agent (LSA) rather than a sponsor. An LSA is a UAE national or a company owned by UAE nationals, appointed to assist with governmental liaison and administrative processes, but they hold no ownership stake in the company and receive a fixed annual fee. This distinction was important even before the recent reforms, as LSAs did not have financial control over the business.
The Game-Changing Reforms 100% Foreign Ownership
A pivotal moment for business setup in Dubai and the wider UAE occurred with the comprehensive amendments to the UAE Commercial Companies Law, effective from June 1, 2021. These reforms largely abolished the requirement for a local sponsor, allowing foreign investors to own 100% of their mainland companies in a significant number of business activities.
This monumental shift was driven by the UAE’s strategic vision to further diversify its economy, attract more foreign direct investment (FDI), and enhance its global competitiveness. By removing the 51% local ownership stipulation, the government has greatly simplified the process and granted foreign entrepreneurs unprecedented autonomy over their ventures in the mainland.
The Department of Economy and Tourism (DET) in Dubai, along with other emirate-level economic departments, subsequently issued lists of over 1,000 commercial and industrial activities that are now open to 100% foreign ownership. This means that for a vast majority of businesses, from retail and trading to various service industries and manufacturing, foreign investors can now establish their companies on the mainland without needing a local partner to hold shares. However, it is important to note that a limited number of “strategic impact” sectors still maintain some foreign ownership restrictions.
These typically include activities related to national security, certain natural resources, and some public utilities (e.g., oil and gas exploration, telecommunications, banking, and insurance in specific contexts). For businesses operating in these very specific and limited sectors, a local partner or minimum Emirati ownership might still be required.
Free Zones Always 100% Foreign Ownership for Business setup in Dubai
While the mainland has recently opened up to 100% foreign ownership, Dubai’s numerous Free Zones have always been champions of full foreign control. From their inception, Free Zones were established with the core principle of allowing international investors to retain 100% ownership of their companies.
This was, and continues to be, one of the primary attractions of Free Zones for foreign entrepreneurs. In addition to full ownership, Free Zone companies benefit from 100% repatriation of capital and profits, and various tax exemptions (including 0% corporate tax for ‘Qualifying Free Zone Persons’ on qualifying income). These benefits, combined with streamlined setup processes and industry-specific ecosystems, made Free Zones the preferred choice for businesses focused on international trade, re-export, or serving global clients without direct engagement in the UAE mainland market.
The presence of a local sponsor or partner has never been a requirement for business setup in Dubai within any Free Zone. This fundamental aspect has consistently provided a clear and attractive pathway for foreign investors to establish their presence in Dubai with complete autonomy.
Does your business setup in Dubai still require a sponsor?
Given the recent reforms, the simple answer to “Does business setup in Dubai require a sponsor?” is generally no for most business activities.
- For Mainland Companies: For the vast majority of commercial, professional, and industrial activities, foreign investors can now achieve 100% ownership. You will not need a local Emirati individual or company to hold 51% of your shares. The instances where a local sponsor or a majority Emirati shareholding might still be required are now limited to very specific strategic sectors as defined by the UAE Cabinet.
- For Professional Licenses on Mainland: While 100% foreign ownership is now allowed for most professional activities, some may still require the appointment of a Local Service Agent (LSA). It is crucial to remember that an LSA is not a sponsor in the sense of holding ownership. An LSA is a facilitator who assists with government relations and administrative processes, receiving a fixed annual fee, and has no equity stake or financial control over the business.
- For Free Zone Companies: No, Free Zone companies have always allowed and continue to allow 100% foreign ownership. You will never need a local sponsor for a Free Zone business setup in Dubai.
The UAE’s progressive legislative changes have significantly eased the burden and complexity for foreign investors, making Dubai an even more appealing global destination for entrepreneurs.
SPC Free Zone in Dubai: A Clear Path to 100% Foreign Ownership
For those considering business setup in Dubai, SPC Free Zone in Dubai (Sharjah Publishing City Free Zone) exemplifies the ease of establishing a company with 100% foreign ownership. As a Free Zone, SPC Free Zone in Dubai has always operated on the principle of full foreign control, meaning no local sponsor is required for company formation.
SPC Free Zone in Dubai provides a straightforward and efficient process for entrepreneurs to set up their businesses, offering a wide range of activities and flexible packages. Its commitment to 100% foreign ownership, combined with its competitive pricing and streamlined administrative procedures (including fast license issuance and in-house immigration services), makes it an incredibly attractive option. Furthermore, the unique dual license option offered by SPC Free Zone in Dubai allows companies to benefit from their 100% foreign-owned Free Zone status while also gaining direct access to the lucrative UAE mainland market, effectively providing a solution that bypasses the traditional mainland market access limitations of Free Zones.
In conclusion, the era of mandatory local sponsorship for most business setup in Dubai is largely over, ushering in a new age of full foreign ownership and greater autonomy for international investors.
