WHAT IS A LOCAL SPONSOR?
Foreign companies which operate in the UAE mainland territory must have a local sponsor who may be either a UAE national or a UAE-based organization that helps the foreign business establish operations there.
Types of Sponsorship:
- The foreign company obtains sponsorship from a UAE national through individual sponsorship.
- A UAE-based company operates as sponsor through joint ventures or partnerships to support the establishment of foreign businesses.
Legal Requirements for Local Sponsors:
(Applicable to the historical framework; many points are now outdated due to new laws)
Local sponsors performed essential duties when necessary to support foreign companies.
- Local Expertise: The local sponsor helps foreign companies understand UAE laws while assisting them through cultural differences and business procedures.
- Administrative Support: Local sponsors help their foreign companies with visa applications as well as trade licenses and legal documentation such as permits.
- Government Liaison: The company used this role to communicate effectively with public agencies thus achieving regulatory compliance.
- Contractual Obligations: The company representative has the task of executing official documents while upholding all UAE laws.
- Potential Liability: Sponsors sometimes needed to provide financial security agreements that shared legal accountabilities with foreign employees.
LEGAL OBLIGATIONS OF LOCAL SPONSORS IN UAE (No Longer in Effect)
According to previous regulations local sponsors needed to provide assistance with various important matters to foreign companies.
- The sponsors’ contractual obligations included both document signing duties and ensuring the company kept to UAE labor law and tax requirements and governance standards.
- Local sponsors sometimes backed up foreign firms through financial pledges and accepted restricted forms of legal and financial exposure.
- Local sponsors supported foreign companies by obtaining government approvals and renewals and maintaining communication between their organizations and local authorities.
UAE labor laws introduced new changes that significantly altered the duties of sponsorships.
RIGHTS AND RESPONSIBILITIES OF LOCAL SPONSORS IN THE UAE (No Longer in Effect)
No longer broadly applicable after the 2021 reform
Local sponsors in the UAE have certain rights and responsibilities associated with their role.
Rights:
- A share of profits (as per agreement)
- Involvement in strategic decisions (case-specific)
Responsibilities:
- Supporting compliance with UAE legal and cultural expectations
- The regulatory body maintains contact through this position
COMMON CHALLENGES FACED BY LOCAL SPONSORS (No Longer in Effect)
Under the older legal framework
- Evolving Laws: The company needed to follow regular legal updates because these changes were vital for meeting regulatory requirements.
- Conflict Management: Local sponsors needed both professional conduct and precise agreements to handle disagreements or disputes with their foreign business partners.
- Balancing Interests: The local regulations needed to be respected through enforcement methods which also safeguarded the interests of foreign investors.
LEGAL SAFEGUARDS FOR FOREIGN INVESTORS (No Longer in Effect)
The former system included different protective measures which foreign investors could use to safeguard their interests.
- Well-drafted Agreements: It was essential to establish transparent agreements regarding profit distribution and organizational power and business cessation rules.
- Free Zones: UAE free zones provide businesses with full foreign ownership rights and limited regulatory restrictions that make them independent of local sponsor requirements.
- Alternative Structures: Certain business structures including branch offices and representative offices might help foreign investors avoid the requirement of a local sponsor for their operations.
Current Best Practices
With the relaxation of local sponsorship requirements, investors now have more freedom but should still proceed with caution:
- Due Diligence: When a sponsor is still required (sector-specific), choose someone reliable and transparent.
- Legal Advice: Always consult qualified legal professionals to ensure all sponsorship arrangements are compliant and protect your interests.
- Stay Informed: UAE business laws continue to evolve. Investors should monitor regulatory updates and adapt their strategies accordingly.
CONCLUSION
While the traditional model of local sponsorship has changed dramatically, it still holds relevance in specific sectors. Understanding the current legal landscape is key for foreign investors to make informed decisions and maintain compliance.
For tailored advice and expert guidance on your business setup in the UAE, reach out to our legal team at Creation Business Consultants. We can help you explore your options, navigate legal requirements, and establish a secure, successful presence in the UAE.
