Understanding the requirements, benefits, and consequences of having a local business partner is of great importance before you plan to start a business in the UAE or Business setup in Dubai. You must know what it all needs to work with a local partner in UAE. The article covers all the aspects which you really need to know.
First, you should know what kind of business you can start in the UAE. Secondly, you should understand if you need a local business partner and how it works.
What are the most common ways for a foreign entrepreneur to set up a business in the UAE?
Obtaining a professional services license, establishing a free zone, or incorporating an LLC are the three most frequent options for foreign entrepreneurs to start a business in the UAE.
Professional services license
Foreign investors can hold 100 percent of a company with a professional license, giving them the benefits of sole ownership. To fulfill the legal requirements, it is necessary to appoint a UAE national as a local service agent. The national service agent who set up receives a fee, but the local agent has no accountability over the firm.
Professional services licenses are awarded to service providers and professional services businesses, as the name implies. Businesses such as restaurants to open in a popular neighborhood that require a local presence in the UAE prefer professional services licenses. According to a survey, the UAE government issued 5,637 new Professional service licenses in 2015.
Free zones, essentially defined regions around the UAE, provide different incentives to people looking to start a business. It includes 100 percent ownership and the tax exclusion for both individuals and corporations. Therefore, setting up a business in free zones is another option for international entrepreneurs who want to keep 100% ownership of their company.
Entrepreneurs who establish businesses in free zones can also repatriate 100 percent of their profits. Whereas, Free zone enterprises cannot trade directly with the UAE’s local market. They need the help of a local agent or distributor. Local agents or distributors will charge a fee.
LLCs (Limited liability companies)
If you want to set up a retail and trade enterprise or manufacturers and trade domestically in the UAE, you must register as an LLC. It provides commercial as well as industrial licenses. Except for banking, insurance, and investing, LLCs can engage in a wide range of economic operations. The only requirement is that UAE nationals must own at least 51 percent of it.
LLCs are the most common business structure in the country. Last year, 15,945 commercial and 201 industrial licenses were issued by the UAE. However, it is essential to remember that earnings are not distributed along these percentage lines. In most cases, the local partner gets compensated.
Do you really need a local business partner in the UAE?
Entrepreneurs must first define the type of business they want to start and whether it will be based in one of the UAE’s several free zones or not. These two considerations will determine whether you require a local partner or not. If you wish to set up a business in the UAE, you should understand these two factors. However, if you cannot understand these two factors, you should set up your shop initially with a local partner.
But it is not always the case. It may be your best alternative if you don’t meet professional services license standards and want to trade directly with the UAE market.
Any firm that falls under either commercial or industrial licenses must register as a Limited Liability Company or LLC. It requires a local partner to own majority ownership in the company unless set up in a free zone.
The concept of “handing over” half of your company does not seem attractive, but you are not actually doing so. Entrepreneurs can keep 100% of their profits based on how the arrangement is reached with the local partner.
Setting up shop in the UAE with a local partner is convenient. It comes with a large number of distinct advantages.
Who can become a Local partner in UAE to set up a Business?
A local partner or sponsor could be the one with the necessary qualifications for the related business activity. Any company founded in the UAE by a foreigner entrepreneur must have one or more UAE partners.
What are the benefits of having local partners for a business in the UAE?
Local partners can provide significant benefits for organizations or entrepreneurs looking to do business in the UAE.
We agree that the 49/51 split in favor of a local partner raises red flags in the minds of foreign companies. However, as we’ve already described, entrepreneurs can still keep 100% of their revenues if they reach a deal with a local partner. Even if a profit-sharing is agreed upon, it is usually for a little sum.
On the other hand, many entrepreneurs choose to use a local partner’s market experience to open doors for themselves in the UAE market. Otherwise, building connections and relationships in the UAE would be impossible.
Working as an LLC with a local partner also allows foreign entrepreneurs to trade directly with the local market. Moreover, it opens an unlimited number of branches across the UAE and pitches for a variety of private and government projects. Keep in mind that free zone or professional services companies without a local partner are not eligible for such advantages.
LLCs are tax-free and, like free zone corporations. It allows foreign entrepreneurs to repatriate 100% of their revenues if they want to. There’s more. Foreign entrepreneurs are given investor status in the UAE when they join an LLC with a local partner, making it easier to gain residency. LLCs are tax-free and, like free zone corporations, allow foreign entrepreneurs to repatriate 100% of their revenues if they so desire. There’s more. Foreign entrepreneurs are given investor status in the UAE when they join an LLC with a local partner, making it easier to gain residency.