Change of Local Sponsor for an LLC Company in UAE – Key Reasons

The ability to change the Local Sponsor for an LLC Company in UAE is something every investor intending to start a company in the mainland of UAE must be aware of.

A Local Sponsor is an integral part of an LLC Company in the mainland of UAE. Previously, Local Sponsors were a must for acquiring a mainland license in UAE. A local sponsor or local service agent is a UAE National or a corporate entity founded by UAE Nationals.

The local sponsor holds at least 51% of the new company’s share. Also, their involvement in running the business is minimal. It is the foreign investor who manages the business operations of the LLC company. However, the local sponsor acts as a liaison officer for visa processing and related activities.

100% Foreign Ownership In UAE Mainland Company

UAE’s latest cabinet decision on allowing 100% ownership to ex-pats in the mainland. Hence, there is no requirement for a Local Service Agent/ Local Sponsor for most of the business activities.

For the services companies, now it is 100% foreign ownership in the mainland for any business activity and there is no specific capital requirement for setting up a company and obtaining the service license on the mainland.

However, for commercial, and trading licenses on the mainland, there is a certain minimum capital requirement for investors to be eligible for 100% ownership.

Criteria for the eligibility of 100% Foreign Ownership In UAE Mainland Company

The share capital requirement varies from AED 2 million to AED 250million depending on the complexity, size, and nature of the business activity and business license category.

Hence for investors who are not able to raise the required capital amount have to appoint a local sponsor and share the ownership.

For companies who wish to shift to 100% ownership and terminate the contract with the local sponsor provided they meet all the criteria can apply for the change of local sponsor to the respective Department of Economic Development of the Emirates.

Key Reasons for Companies Changing their Service Agent or Local Sponsor in UAE

Most of the business operations run by the founders, managers, and employees of the company. However, there are immigration and labor-related affairs of the company that requires the involvement of the local sponsor.

It is the PRO of the UAE National that usually represents the individual and most of the interaction happens through the PRO.

1. No access to the local Sponsor or Service Agent

The coordination for appointing the local sponsor is by engaging with the sponsor’s PRO, designated consultants, or a legal advisor.

Often, the details of the Sponsor are not available to the investor and it is the PRO or Consultant preparing the agreement and appointing the national sponsor for the foreign investor.

2. Unavailability of Local Sponsor

The unavailability of a Sponsor is an issue for most of the investors in an LLC Company. Especially, when it comes to the visa and immigration requirements of the employees. Since the sponsor’s PRO card is a requirement to process the visas.

The Sponsor’s PROs have to liaise with the Sponsor to obtain their card for immigration and visa purposes.

3. Limited Rights for Visa Processing and Immigration

Foreign investor has limited rights when it comes to immigration and visa processing. The local sponsor’s PRO Card and details will require to apply for or cancel the visa.

Also, the local sponsor details will require renewing a company trade license. Hence, the investor has to approach the PRO or the Business Consultant mostly to get the details to complete the visa processing or allied administrative work.

4. Immigration and Labour rights

The main requirement of local sponsor details is during immigration, visa processing, visa cancellation, trade license renewal, etc.

The company must create an account with the immigration and labor department and provide the local sponsor details. The Sponsor’s e-signature card will require to apply for work permits.

5. Lack of Process clarity

The foreign investor at times will have no information about the whole process of obtaining the details of the local sponsor by the PRO or the Consultants. The cost involved, receipts, and process flow often remain with the Sponsor’s PRO.

6. Organization Documentation

For appointing a local sponsor there has to be a Memorandum of Association prepared between both the parties.

Similarly, in the case of services companies, there will be a service agent contract and Business consultants who would be assisting you with the whole administrative process.

There needs to be an end-of-service statement prepared along with the other documentation. A 3 months notice period must be maintained before the renewal of the permit.

The notification of change to the agent must be emailed to the local sponsor or service agent as well as a hard copy of the statement must be sent to the physical address.

7. Dispute resolution

In case of any dispute with the local sponsor, it is best to resolve the issue by notifying the consultant or the company PRO about the issue.

As a last resort, request for changing the local sponsor before the next renewal. if the sponsor is not in consent with the change in sponsorship, approach a lawyer in UAE and seek their assistance.

8. Documentation

To change the local sponsor agent, the foreign investor has to present the following documents:

• Company Trade License
• Memorandum of Association
• NOC from the Local Sponsor/Local Service Agent
• Share Certificate, Power of Attorney, Immigration & labor documents,
• PRO Cards, receipts of yearly sponsorship payments, and any supporting documents.

All the documents are to be submitted to the Department of Economic Development of the respective emirate where the company is registered.

Once the application is approved, the company trade license is updated and the new local sponsor is added to the contract, or if eligible for 100% foreign ownership, the business license will be updated accordingly.

Aurion will assist global investors in seamlessly changing the local sponsor in UAE. The investor can benefit from the complete ownership and financial control of the company and ensure the shareholding rights are projected in the company.

Do You Really Need a Sponsor to Start a Business in UAE?

There exists a lot of confusion on different types of companies that can be set up in UAE by foreign entrepreneurs. There is also complexity in the need for UAE local sponsors to start a business.

So, do you really need UAE citizens as Local Sponsors?

As per the amendments in the latest commercial companies Law, there is no mandatory requirement for UAE local Sponsors for a Mainland Company. However, businesses can still have a Local Sponsor for their company if they prefer to have one.

Also, for certain selected business activities such as healthcare, insurance, education, manufacturing, agriculture, etc. There is a minimum investment required to own 100% of the company’s shares by foreign investors.

Hence, a Local sponsor is not a compulsory requirement anymore if a foreign entrepreneur wishes to establish his business in the UAE mainland. The sponsor should be a UAE national and in the case, of Free Zones there are no such requirements.

For foreign investors looking for a local partner to set up the business in the UAE mainland will have an agreement. 51% of the business will be owned by the local sponsor and the rest by the foreign owner. They are paid a sponsor fee which is agreed upon when the business is set up.

So if any entrepreneur is planning to setup business in UAE then it is important to know about the procedures. Businesses can be setup in UAE mainland through Individual Sponsorship, Corporate sponsorship, and Local Service Agent.

Individual Sponsorship

From the name, we can guess what is individual sponsorship. This is when an individual UAE national sponsor holds a 51% share of your business. This individual must be above 21 years old and can be a male or female and may or may not run a business in your same field. But this individual sponsor must either be a professional or a UAE government employee or a businessman.

But in this type of sponsorship, there is another important option. The sponsor can hand over the power of attorney and hence the full control of the business to the foreign entrepreneur and ask for a fixed annual sponsor fee.

Corporate Sponsorship

This is similar to individual sponsorship but here sponsor is the UAE national company. And they hold the 51% share of your business.

Local Service Agent

Previously, professionals such as doctors, engineers, or accountants required a local service when they wish to establish their business in UAE. The agent will represent the company in all the administrative work. They also, deal with the government officials and Ministries on behalf of the company. They do not hold 51% share of your business, instead, there is an annual fee payment. It can vary depending on the activities or services they contribute to the business.

The option for the foreign entrepreneur to completely own the share of their business is to set up business in Free Zones or opt for 100% ownership on the Mainland subject to certain criteria.

Free zones

This is the best option for foreign entrepreneurs to own a complete share of their business. Free zones are the area in UAE that offer the advantage of setting up a business with 100% expatriate ownership. It also enables corporate tax exemption and complete repatriation of capital and profits.

Professional Services Licence

This is the only option for a foreign entrepreneur to set up a business outside the free zone and owns 100% of the business.  Professional Services Licence is provided to the service providers and professional service businesses. Presently, there is no mandatory requirement for a local sponsor or service agent to obtain a professional service license.

LLCs

Businesses with Commercial or Industrial Licence and wish to trade locally including retail/trade businesses must form LLC. There are numerous business benefits for an LLC company in UAE. However, there are exceptions to setting up an LLC company in the field of banking, insurance, finance, etc.

So now, do you need a sponsor?

The answer is NO. But if you do not meet the requirements for a professional service license and do not want to proceed with 100% foreign ownership of the mainland company. There is always an option to go ahead with a local sponsor and setup your LLC Company in the mainland of UAE.

How to Remove Local Sponsor of a Limited Liability Company in Dubai?

Investors can remove local sponsor of a limited liability company in Dubai by filing the application for amending the trade license. The company shareholders can remove the local sponsor for any reason such as disagreement, unavailability for communication, or any other specific reason.

For removing a Local Sponsor from the company all the shareholder of the Limited Liability Company must sign and submit the application to the DED, Dubai. A new Memorandum of Association must be prepared from the Notary Public (Dubai Courts) and all Shareholders including the Local Sponsor must be present for their signatures.

After the new Memorandum of Association is prepared it must be submitted to the Department of Economic Development (DED) Dubai for the amendment of the trade license. After the local sponsor is removed from the company, the current trade license will be amended by the Dubai Economy (Department of Economic Development).

Consequently, for removal of the Local Service Agent in a Services company, the process is simpler. An NOC Letter is required with the Local Service Agent signature agreeing the removal of Local Agent. The NOC Letter must be submitted to DED for amending the existing trade license.

Similarly, a Local Sponsor from an LLC company can be removed and a new trade license can be issued by submitting a NOC request to the DED. Furthermore, a new Memorandum of Association for the LLC Company will be issued after the Trade License Amendment.

Connect with our expert team right away to know more about the process of changing the local sponsor in the UAE.