Does business setup in Dubai need a local partner?

Does business setup in Dubai need a local partner?

Key Takeaways:

  • The requirement for a local partner in Business setup in Dubai has significantly changed, with 100% foreign ownership now allowed for most mainland activities.
  • Free zones have always offered 100% foreign ownership and remain a popular choice for full control.
  • For mainland professional licenses, a Local Service Agent (LSA) might still be required, but they do not hold shares.
  • A local partner may still be mandatory for businesses in “strategic impact” sectors on the mainland.
  • The decision depends entirely on your chosen business activity, jurisdiction, and desired level of market access.

For many years, one of the most frequently asked questions by foreign investors considering a Business setup in Dubai was, “Does business setup in Dubai need a local partner?” The answer was often complex, traditionally involving a requirement for an Emirati national to hold a majority share in mainland companies. However, the landscape of business ownership in the UAE has undergone significant reforms, particularly with the amendments to the Commercial Companies Law in 2021. These changes have revolutionized foreign investment, largely eliminating the need for a local partner for most business activities. Understanding these reforms and the options available is crucial for any entrepreneur planning their venture in Dubai.

The Historical Context: The 51% Rule for Business setup in Dubai

Before the sweeping legislative changes in 2021, the default rule for most mainland Business setup in Dubai (specifically for Limited Liability Companies or LLCs) mandated that a UAE national, or a company wholly owned by UAE nationals, hold at least 51% of the shares. This “51% rule” was a cornerstone of the UAE’s commercial law for decades.

Foreign investors were limited to a maximum of 49% ownership, which often necessitated finding a trustworthy local sponsor. While many local sponsors adopted “silent partner” agreements, where the foreign investor retained full operational control and profit share in exchange for an annual fee, the legal framework still presented a perceived barrier for some international entrepreneurs. This requirement aimed to foster local participation in the economy and facilitate market integration. However, it also led to concerns among some foreign investors regarding control and profit distribution. Businesses looking for 100% foreign ownership were almost exclusively limited to free zones.

The Game Changer: 100% Foreign Ownership on the Mainland for Business setup in Dubai

The pivotal shift occurred with the UAE Federal Decree-Law No. 26 of 2020, amending Federal Law No. 2 of 2015 on Commercial Companies, effective from June 1, 2021. This landmark reform abolished the mandatory 51% Emirati shareholding requirement for most commercial and industrial activities on the UAE mainland.

This means that for the vast majority of business activities (over 1,000 commercial and industrial activities), foreign investors can now establish a Business setup in Dubai mainland company with 100% foreign ownership. This revolutionary change allows entrepreneurs to retain complete control over their companies, operations, and profits without the need for a local partner to hold majority shares. This reform was enacted to further attract foreign direct investment, enhance the UAE’s competitiveness on the global stage, and diversify the national economy. Businesses in various sectors, from general trading and retail to manufacturing and real estate, can now benefit from full ownership while enjoying unrestricted access to the entire UAE local market.

Local Service Agent (LSA) for Professional Licenses in Business setup in Dubai

While the 51% ownership rule has been abolished for most commercial and industrial licenses, the situation for professional licenses in Business setup in Dubai on the mainland is slightly different. For activities that are primarily service-oriented and rely on intellectual capabilities (e.g., consultancies, legal services, accounting firms, medical professionals), the legal structure often takes the form of a “Sole Establishment” or “Civil Company.”

For such professional licenses, while 100% foreign ownership is allowed, a Local Service Agent (LSA) may still be required. It is crucial to understand that an LSA is not a shareholder and does not hold any equity in the company. Their role is purely administrative and legal; they act as a liaison with government departments, assisting with license renewals, visa processing, and other bureaucratic formalities. The LSA typically receives a fixed annual fee for their services, and their responsibilities are clearly defined in a notarized LSA agreement, ensuring the foreign owner retains full operational and financial control. This distinction is vital for professionals seeking to establish their presence on the Dubai mainland without diluting their ownership.

Exceptions to 100% Foreign Ownership and Strategic Activities for Business setup in Dubai

Despite the widespread allowance for 100% foreign ownership, there are still a few exceptions where a local partner or a specific percentage of Emirati ownership may remain mandatory for Business setup in Dubai on the mainland. These exceptions generally apply to activities deemed to have a “strategic impact” on the UAE’s economy or national security.

The UAE Cabinet has the authority to specify these “strategic impact” sectors. Examples typically include, but are not limited to, activities in:

  • Oil and Gas exploration and production
  • Telecommunications
  • Banking and Financial Services (some specific areas)
  • Insurance
  • Certain public utilities
  • Activities related to security and defense
  • Hajj and Umrah services

For businesses operating in these highly sensitive or regulated sectors, a local partner (or specific Emirati shareholding requirements) may still apply. It is essential for investors in such niches to consult with business setup experts or legal advisors to confirm the latest regulations specific to their chosen activity before proceeding with a mainland Business setup in Dubai. This ensures full compliance and avoids any potential legal complications.

How Can Meydan Free Zone Help?

For foreign investors who wish to guarantee 100% foreign ownership without any potential complexities related to mainland strategic activities or Local Service Agents, Meydan Free Zone in Dubai offers a straightforward and highly attractive solution. Meydan Free Zone in Dubai has always provided complete foreign ownership as a fundamental benefit, and this remains a core advantage.By establishing your Business setup in Dubai within Meydan Free Zone in Dubai, you are automatically guaranteed 100% foreign ownership, full repatriation of capital and profits, and exemptions from corporate and personal income taxes on qualifying income. This eliminates the need to assess if your specific activity falls under strategic impact categories or requires an LSA. Meydan Free Zone in Dubai provides a clear, transparent, and efficient process for company formation, with all regulations handled directly by the free zone authority. This dedicated ecosystem ensures that entrepreneurs can focus entirely on their business growth with complete control, making Meydan Free Zone in Dubai an ideal choice for many international investors.