We all know that forming a company in the Dubai mainland requires the involvement of a local sponsor. Are you aware of the process of changing local sponsor in Dubai? This blog will act as a guide for all those individuals and officials who are planning a company setup in Dubai in partnership with a UAE sponsor and the laws behind changing local sponsors in Dubai.
Dubai is home to thousands of expats. It attracts foreign investments through its liberal policies and pro-business environment that helps in boosting business growth and reaping profits. Furthermore, it has a high-class infrastructure and advanced technologies that support the modern business model and communication system. Therefore, foreign investors and entrepreneurs mostly choose Dubai to set up their businesses and earn better proceeds. However, setting up a business can be a complex procedure. The foreign investor has to go through several legalities and processes to accomplish this task.
Investors who choose Dubai mainland as their work base have to fulfill the legal requirement of the UAE sponsor who will own 51% of the total shares of the company. The remaining 49% comes under the ownership of the foreign investor.
Who is a Local Sponsor in Dubai?
Foreign investors, including non-UAE or GCC nationals, who wish to invest or establish a company in Dubai or anywhere in the United Arab Emirates have to find a local sponsor who will help them in company setup in Dubai. A local sponsor can be a UAE national or a corporate entity that originally belongs to UAE. Besides, there are no restrictions on the number of organizations they can sponsor or be a part of. To illustrate, they can fund or sponsor multiple businesses at the same time, including their own.
According to UAE company laws and regulatory requirements, foreign companies in Dubai mainland are expected to have a local Emirati or a UAE company as their partner with the majority of company shares in their name. To elaborate, 51% of the shares are owned by the sponsor and the remaining 49% belongs to the owner itself. However, Dubai freezones are free from such stringent laws and allow foreign investors to enjoy complete ownership of the business.
Responsibilities of a local sponsor
Although with the majority of shares, the involvement of the sponsor in company operations is minimal and the annual income is also fixed, certain responsibilities fall upon the shoulders of the local sponsors. For instance,
- Cancellation of work visas of employees
- Closure of company bank accounts
- Settlement of outstanding debts, if any
- Cancellation of the labor status for employees
- Dealing with the government officials and ministries on behalf of the company
- Assistance in the license renewal process
- Translation of business contracts that are in Arabic, for business registration
- Understand and sign the documents on behalf of the foreign business partner
Since the local sponsor has the expertise and wide knowledge of the UAE market, it can help the company to come up with smart strategies to enhance brand growth and business development. Moreover, the sponsors have better access and connections in the UAE that can assist in extensive market reach as well as improved networking with giant market players.
In most cases, the local sponsors surrender their power of attorney to the foreign investor for an annual fee. Still, certain circumstances can lead to changing local sponsors in Dubai.
Reasons for changing local sponsors in Dubai
Mostly, the executive directors, managers, or any other higher-level officials are in charge of the business activities. However, the local sponsors have less to do with any affairs of the organization. Usually, their personal PROs represent these sponsors, be it an individual sponsor or a corporate sponsor.
Yet, there come certain situations where companies plan to change the local sponsor. For example –
The sponsor is inaccessible
Certain business owners in the Dubai market do not have direct access to their local sponsors but via their PROs/consultants/lawyers. That means they do not have a formal interaction with the sponsor or service agent, rather the conversations happen through their representatives. At times, the representatives may not have a structured presentation as per the business owner’s requirement. Also, it happens that the owner does not possess any details of the sponsor, such as passport information, location details, and even contact details.
The rights of the foreign owner are limited
The company setup in Dubai does not have the required rights to represent the shares of the sponsor. Hence, there are situations where they have to get their jobs done at premium prices and incur constant expenses as well.
The sponsor is busy or unavailable
Another challenge faced by the companies is the unavailability of the sponsor. They have no alternative other than dealing with their PROs and continuing with the sponsor services.
The processes remain unclear
The unavailability of the sponsor may even lead to a lack of process clarity and basic knowledge of the system or expense factor. Most of the time, they do also not provide original government receipts or even the basic services on time.
Dependency on the sponsor for certain official tasks
During the registration of the companies, the labor and immigration department falls under the sponsor’s duty list. Thus, at times, there is a requirement for the sponsor’s signature to apply for work permits. It creates a complete dependency on the sponsor, thus, causing a delay in the completion of the task due to the unavailability of the sponsor.
Read the post also: General Trading License in Dubai [2022 Guide]
How do change local sponsors in Dubai?
Below are the steps for changing local sponsors in Dubai :
Refer to company documents
In the case of a local sponsor or a local service agent, you would have a Memorandum of Association(MOA) or a service agent agreement respectively. Both these documents include a clause related to the termination of services.
There is normally a 3-month notice before the renewal of the license. Therefore, the foreign partner must send this notice in writing or via email at the sponsor’s official physical / email address.
Try to resolve disputes
If a conflict has arisen between you and the local partner, try to resolve it first. Through mediation or informal discussions, both parties can work through their matters and come to a mutual agreement. If things still do not work out, you can proceed with the plan of changing the local sponsor, hopefully with their cooperation.
However, in any case, if the sponsor refuses to agree with your decision of change, you may seek legal assistance and settle the matter through the courts.
Gather the necessary documents
For an easy and smooth settlement of the matter, the foreign partner must ensure to submit all the requested documents to the court. These documents may include the power of attorney, Labour and Immigration documents and cards, receipts of annual sponsorship payments, and especially the MOA. The MOA is a legal agreement between the foreign investor and the local sponsor.
Present the documents at the court with the current sponsor
Once the sponsor agrees/disagrees with the change, you will officially meet at the court where an official will review all the documents and confirm the sponsor’s status. Afterward, a revised MOA, license, and other new documents will be issued for the company.
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