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The rules around local sponsors changed a lot in 2021. A lot of outdated advice is still circulating because of it.
What is a local sponsor in Dubai?
A local sponsor is traditionally a UAE national who holds a share in a mainland company and, in the past, was often needed to make up the majority ownership on many mainland licences. Since 2020’s ownership law reform, most mainland activities now allow up to 100% foreign ownership, which has sharply reduced how many businesses need one. Mainland company setup in Dubai today looks very different from how it worked a decade ago.
What a Local Sponsor Does
Where a sponsor arrangement still applies, the sponsor usually holds an equity stake in the company. In exchange, they typically receive an agreed fee rather than taking an active role in day-to-day operations. The exact terms sit in a shareholder agreement between the founder and the sponsor.
This is different from a service agent, covered further down. A sponsor holds equity. A service agent does not.
Do You Still Need One After the 2021 Law?
For most commercial and industrial mainland activities, no. The law reform allows up to 100% foreign ownership for the majority of business activities, which removed the mandatory UAE-national majority-shareholder requirement that used to apply broadly.
Some sectors are treated differently. Cabinet Resolution No. (55) of 2021 lists a specific set of activities with “strategic impact” that still carry UAE ownership requirements:
- Security and defence work
- Banks, insurance, and money-exchange businesses
- Money printing
- Telecommunications
- Hajj and Umrah services
- Quran memorisation centres
- Fisheries services (its own category, requiring full Emirati ownership with no foreign investment allowed at all)
For every activity on this list except fisheries, the relevant federal regulator, not the free zone or DET, decides the minimum Emirati ownership share and how many board seats a foreign investor may hold, on a case-by-case application basis.
Certain professional and civil licence categories also work through a different arrangement entirely: a local service agent rather than an equity sponsor. Check your specific activity against current rules before assuming either way, since this depends on your exact business activity and licensing authority.
How to Find a Reliable Sponsor
If your activity is one of the smaller set that still requires local ownership, treat the relationship like any other business partnership. Put every term in writing: the fee structure, the sponsor’s role, and an exit or buyout clause if the relationship ends.
A setup consultant familiar with Dubai’s Department of Economy and Tourism requirements can also confirm whether your specific activity needs a sponsor at all before you start looking for one. Many founders spend time sourcing a sponsor for an activity that no longer requires one.
If your activity does fall on the strategic-impact list, the approval process runs through more than one authority. You submit your application to the licensing department in the emirate where you’re forming the company, and that department forwards it to the federal regulator responsible for the activity. For banking and insurance, for example, that regulator is the UAE Central Bank.
The regulator then decides the minimum Emirati ownership share, whether you can appoint board members, and any other conditions before sending approval back to the local licensing authority. This adds real time to your setup timeline, so factor it in from the start rather than discovering it mid-application.
Sponsor vs Service Agent
These two roles get confused constantly, and they are not the same thing.
A sponsor holds equity in the company. This applies to the smaller set of activities that still carry ownership requirements.
A service agent holds no equity and no ownership stake. They act in an administrative capacity, mainly for certain professional and civil licence categories, helping with government-facing paperwork, renewals, and other filings in exchange for a fixed fee agreed in a service agency agreement. A service agent has no claim on the business itself, no say in how it is run, and no share of its profits.
The practical difference shows up clearly if the business is ever sold or wound up. A sponsor’s equity stake means they are a shareholder with a claim tied to the company’s value, so their exit needs to be handled as part of any sale or restructuring. A service agent’s role ends when the service agreement ends, since they were never an owner to begin with.
Knowing which one your activity actually requires, if either, saves you from paying for equity you did not need to give up. If you’re still deciding between a free zone and mainland setup at this stage, our freezone vs mainland in Dubai comparison covers ownership differences between the two routes directly.
DIFC and ADGM Work Differently
Free zone financial centres, DIFC in Dubai and ADGM in Abu Dhabi, run under their own separate legal and regulatory frameworks rather than the federal Commercial Companies Law that governs mainland sponsorship. Companies licensed inside these two centres already operate with full foreign ownership as a feature of the centre’s own rules, not as an exception carved out under the 2021 reform.
If your activity is financial services and you’re weighing DIFC or ADGM against a standard mainland or free zone setup, the sponsor question does not apply there in the same way. You will still need to check the centre’s own licensing and capital requirements separately.
Conclusion
Local sponsorship is not the blanket requirement it used to be. Most mainland activities now allow full foreign ownership. Where a sponsor or service agent is still required, know exactly which role applies to your activity, and put the relationship in writing from day one.
Not sure whether your activity needs a sponsor? Our team advises on mainland business setup in UAE ownership structure before you commit to anything.
This guide is general information. Ownership requirements differ by business activity and licensing authority. Check with the relevant authority or a setup consultant for your own case.
FAQ
Do I still need a local sponsor for a mainland company in the UAE?
For most commercial and industrial activities, no. A 2020 law reform, effective 2021, allows up to 100% foreign ownership for most mainland activities.
What is the difference between a local sponsor and a local service agent?
A sponsor holds equity in the company. A service agent holds no ownership stake and works in an administrative capacity for certain professional and civil licence categories.
Which UAE business activities still require a local sponsor?
Activities classified as having strategic impact, along with certain professional and civil licence categories, may still carry ownership or service agent requirements. Check your specific activity with the licensing authority.
What counts as a “strategic impact” activity in the UAE?
Cabinet Resolution No. (55) of 2021 lists security and defence work, banking and insurance, money printing, telecommunications, Hajj and Umrah services, Quran memorisation centres, and fisheries services. Fisheries require full Emirati ownership; the other categories need case-by-case regulatory approval on ownership share.
