Dubai continues to strengthen its position as a leading global destination for entrepreneurs and investors. As of March 2025, the total number of registered business licences in the emirate surpassed 581,000, marking a 3.4% increase from the 562,000 recorded at the end of 2024.
Among the most frequently asked questions by new investors is whether partnering with a local sponsor is still a mandatory requirement to establish a business in Dubai. While the concept of local sponsorship once played a central role in mainland business ownership, legal updates have significantly changed this scenario.
In the blog ‘Do You Really Need a Local Sponsor? Business Myths Busted,’ we address the relevance of local sponsorship today, clear up long-standing misconceptions, and explain how a reliable business setup consultant in Dubai can guide you along the way with ease.
How Sponsorship Rules Have Changed Over Time
The old reality: Foreign-owned companies in mainland UAE traditionally required a UAE national to hold at least 51% equity. This local sponsor role carried both compliance and control risks. However, this requirement no longer applies universally.
The new framework:
- Free Zone entities have consistently permitted 100% foreign ownership, requiring only a local service agent in some cases, never a sponsor.
- Mainland businesses across most sectors have seen regulatory reforms permitting full foreign ownership.
Reforms Enabling 100% Foreign Ownership
Recent amendments to the UAE Commercial Companies Law allow foreign investors full equity ownership in most sectors, particularly in mainland regions. These reforms aim to attract international investments and align mainland Dubai with free-zone advantages.
Benefits include:
- Complete control over operations
- Streamlined corporate governance
- Simplified profit repatriation
- Enhanced access to government contracts and prime retail spaces
Exceptions: When a Local Sponsor Is Still Required
While many business sectors in the UAE now permit full foreign ownership, there are still a few specific industries where having a UAE national as a sponsor or shareholder is required. These usually include:
- Defence and military equipment
- Banking and finance
- Insurance
- Oil & gas
- Security services
- Telecommunications and postal services
- Select medical retail sectors
For entrepreneurs outside these categories, full ownership is feasible in both mainland and free-zone setups.
Debunking Common Myths About Local Sponsorship
Despite regulatory changes and clearer guidelines issued by UAE authorities, misconceptions about local sponsorship continue to mislead many aspiring entrepreneurs. Below, we address some of the most common myths.
Myth 1: Every mainland business in Dubai requires a local sponsor.
Reality:
This was true in the past, but no longer reflects current regulations. Under the updated UAE Commercial Companies Law, 100% foreign ownership is now allowed for most business activities in the mainland, with exceptions only in strategically sensitive sectors such as defense, oil & gas, and telecommunications.
Today, the requirement for a local sponsor applies only to a narrow range of regulated activities, not the majority of commercial licenses.
Myth 2: Free zones don’t offer full business control.
Reality:
Free zones have always permitted 100% foreign ownership. Entrepreneurs can establish businesses without the need for a local partner or sponsor. These zones offer specially designed packages, flexible office setups, and simplified procedures for foreign investors.
What often causes confusion is the fact that free zone businesses are limited in operating within the mainland UAE unless a local distributor is appointed. This is a market access issue, not an ownership issue.
Myth 3: A local sponsor will be actively involved in your business.
Reality:
In many traditional sponsorship arrangements, the local sponsor acts as a silent partner, holding a 51% share on paper but with no involvement in daily operations, decision-making, or financial obligations.
The specifics are governed by side agreements and investor protection contracts. However, this model is largely being phased out in favor of full foreign ownership structures, making this concern increasingly irrelevant.
Myth 4: You cannot open a corporate bank account without a local sponsor.
Reality:
Corporate banking in the UAE depends on compliance checks, the nature of your business activity, and proper documentation, not on local sponsorship. Both free zone and 100% foreign-owned mainland companies are eligible to open business bank accounts, provided they meet standard KYC (Know Your Customer) and regulatory requirements.
Myth 5: Professional service companies must give up equity to a UAE national.
Reality:
Professional service licenses (for fields such as consultancy, accounting, or IT services) on the mainland do not require equity sharing. Instead, they may appoint a Local Service Agent (LSA), a UAE national who facilitates government liaison but holds no ownership or control over the business.
This distinction is critical and often misunderstood. An LSA is not a sponsor or partner.
When Might You Still Choose a Local Sponsor?
While no longer a legal requirement for most business activities, some entrepreneurs may still opt for a local sponsor as part of a strategic business decision.
Established market connections and local relationships
A well-connected local sponsor can provide valuable insights into the domestic market and facilitate introductions to key stakeholders. This can accelerate brand visibility, access to local networks, smoother operational entry, and more.
Frictionless access to government contracts in restricted sectors
Certain public sector contracts or tenders may prioritize companies with UAE national involvement. In such cases, having a local sponsor can improve eligibility and competitiveness, particularly in regulated industries.
Simplified banking and insurance processes via local credibility
A UAE national’s involvement may ease initial compliance procedures with local banks or insurers. Their presence can help validate your business’s local footprint, especially during account openings or negotiations with domestic service providers.
That said, choosing a local sponsor under the current regulations is a strategic option, not a legal mandate, one that should be evaluated carefully based on the nature of your business and long-term goals.
So, do you really need a local sponsor to start your business in Dubai? In most cases today, the answer is no. With the UAE’s business landscape evolving, foreign investors now have more flexibility and ownership options than ever before. But knowing where your activity fits and choosing the right setup still takes careful planning. That’s when having the right guidance truly helps. We, Damaar Business Consultants, offer customized business setup services in Dubai to help you make good decisions, paving a clear path to getting your business started the right way.