LLC Company Formation Dubai | A Sponsor Is Required By Law
LLC company formation Dubai: Background, sponsorship, agreements, role, types, risks, fees, choices, free zone, and opportunities
LLC company formation Dubai: Paying money to a United Arab Emirates [UAE] national as sponsorship for a Dubai local company sounds like unearned money, but it isn’t!
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LLC company formation Dubai: Background
Dubai joined the UAE in 1971 after the British forces left the Middle East. It was one of the first to join among the seven Emir ruled states – or Emirates. [Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, Umm Al Quwain, Fujairah, in addition to Dubai.]
Though UAE is under the complete control of the Federal Supreme Council. Each of the 7 rulers is a member with 1 vote each.
Dubai has a high level of autonomy. Dubai, as we know, is famous for its breathtaking skyline, beaches, and trade and commerce.
Working conditions in Dubai and the UAE, are different from that of other countries and if you are planning to invest there you should be aware of the terms and conditions of ‘Sponsorship’.
The climate in Dubai is subtropical and you get clear skies throughout the year with very little rainfall and that too in winter. Summer temperatures are extreme, with scorching hot days and mild winters.
The population of Dubai consists of people from more than 150 countries including Egypt, Palestine, Syria, Iran, Jordan, Sudan, China, India, Pakistan, the United States, Eastern Europe, and the members of the European Union.
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Sponsorship
If you are an investor and wish to incorporate in Dubai, then you need to know about sponsorship for Dubai.
Every foreigner in the country must have a Sponsor. Every business must have a Sponsor or a Service Agent. If you want to visit Dubai, then you need sponsorship for Dubai. Sponsorship for Dubai and in the UAE is very important.
If you are in a free zone, the free zone is your sponsor.
A Sponsor or a Service Agent in Dubai is any UAE national, man or woman, or any UAE owned company who is willing to take on the responsibility of bringing you into the country – as an investor, or as an employee, or even if you are a Tourist. Some Professional categories only need to have a ‘Service Agent’.
Sponsorship agreements
A Sponsor normally is a 51%+ owner of the business on paper if it is a local LLC company. He does not invest any of his own funds, and you are obliged to put 51% of your capital in his name. In most cases, he will not partake of the profits of the business but will take either an annual fixed fee or a percentage of revenues.
Many investors do side agreements with the UAE nationals offering sponsorship for Dubai, where the Sponsor agrees that the 51% is not his, but this point is not necessarily upheld by the Dubai Courts.
A Service Agent is generally only attached to Professional category companies where the professionals are entitled to own 100% of their companies e.g. Doctors, accountants, carpenters.
Role of Sponsor or Service Agent
The official language of the UAE is Arabic yet in the majority of the trade and commerce activities of Dubai the English language is applied. But many government documents are in Arabic so they need to be typed by a typist who can do so in Arabic. The Sponsor or the Service Agent, most of the time, sign these documents, and if you trust him, interprets them for you.
Sponsorship for Dubai is how the Government of Dubai, UAE, persuades the local population to welcome these large numbers of foreigners, who outnumber them 1:10, by allowing the former to make money from every foreign investor who comes into Dubai.
The Government itself makes billions of Dollars as visa and company registration fees. The banks keep billions of dollars in security deposits for the employment visas that the companies pay before the visas are issued.
And now the insurance companies too will get a significant amount of money because of the new health insurance regime in place from August 2008.
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Types of Sponsors or Service Agents
- The simplest form of Sponsor or Service Agent generally only signs your application documents for the Trade License, or to the Departments of Labor or Immigration.
- A more expensive one may help you to get permissions if your documents are stuck in one of the departments. Another may even help you with negotiations for rent or with opening bank accounts.
- Other types of Sponsors – those from rich and connected families or those with high government positions will be the most expensive because their name will help you to get clearances – but they will not be willing to go with you to meet anyone to solve a problem.
Sponsor’s risks
Until the UAE national knows you and trusts you, he will not give you powers to run your own bank account, or make your own applications to the Labor and Immigration ministries.
These are the risks to the Sponsor:
- If you default, then the Sponsor is liable for any cheques you have issued and for any employees on your visa, since technically he is the 51% partner!
- If you leave the country, he has to find a way to cancel the visas of your employees and send them home
- As well as close your company and bank accounts.
Sponsor Fees
The typical annual Sponsorship fee can run from US$ 4,200 per year for a small shop to several million US Dollars for a large multinational company.
In the years up to 2000, the government was eager to have small and medium-size businesses from wherever they could get investors.
Then, with real estate appearing as a lucrative opportunity, the focus shifted to bigger, branded, UAE businesses and the market changed forever – especially for the small and medium business owners, as did the sponsorship fees!
2,000+ business activity licenses
Rules for incorporation have become simpler, but the thousands of license categories continue to be bewildering. Sponsorship is sometimes essential to help guide you through the morass of alternatives.
Some Sponsors have registered their own companies to do this as a business and offer company registration services.
Free Zones
It is much easier now to obtain a license to do business with the several Free Zones springing all across the UAE, but the visa costs have gone up 8 times in the last 12 years as have the Trade License annual fees.
Free Zones – at last count 28, act as UAE business centers and make life easier for the foreign investor and provide excellent world-class facilities.
In addition, foreigners can own 100% of their companies in the Free Zones as opposed to only 49% when they incorporate a UAE business in the country. But there is still a Sponsor – The Free Zone Authority where you are incorporating. Many multinational companies have set up shop in the free zones.
UAE business is simple after the first year of getting your ‘Sponsorship Agreement’, office space, your ‘Trade License’, ‘Labor and Immigration computer cards’, your own ‘Investor visa’ stamped in your passport, your ‘Driving license’ and your bank account.
LLC company formation Dubai: Opportunities
Opportunities are growing rapidly in real estate and properties are being built here using almost one-third of the building equipment of the world. There is continuous rapid growth in real estate UAE. Almost US$ 800 bn worth of projects is under construction as of 2008.
UAE is focusing on becoming a regional hub for
- Health care via the Dubai Health Care City and Harvard Medical Center.
- Leisure via Dubailand and the entertainment parks in collaboration with Six Flags, Busch Gardens, Formula 1, Legoland, Universal Studios, Bollywood, Marvel, Sea World and Dreamworks Studios.
- Financial services via Dubai International Financial Center [DIFC] in collaboration with Nasdaq.
- Education via Academic City and the several universities from around the world.
- Software via the Dubai Internet City and many more.
And so while the Government of Dubai makes a lot of money, LLC sponsorship is enjoying a boom too!
With the increasing restrictions on travel and the intense scrutiny imposed by the US on Middle East money, investors in the region have started investing a portion of their substantial oil portfolios, back into the region instead of into the West as in times past.
As one longtime resident of Dubai said: ‘You can stand on the sidelines and criticize, question and wait for the bubble to burst, or you can get into the action and make money for yourself!’
Would you like to incorporate it in Dubai, UAE?
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