Biggest Myth about Middle East’s Local Sponsors

In my short stay in UAE and having met few finest people on the planet who are locals, I thought to share my experience and clear few doubts about these LOCAL BUSINESS PARTNERS...

Many of us have heard stories about the decisions of various entrepreneurs who were eyeing the middle east for setting up their businesses but hold their plans due to local partner and sharing 51% stake with him.

Few crap stories about claiming the entire company once the business gets established.

Even few stories about undue pressure from the local on the expatriate to leave the country and leave everything behind him.

In my short stay in UAE and having met few finest people on the planet who are locals, I thought to share my experience and clear few doubts about these LOCALS.

Who is a Local Sponsor or Partner?

This is a citizen of the country where you are going to setup your business in the entire middle east, this person will join you as a 51% partner in the business and you will hold remaining 49% in case you are setting up an LLC.

He will be a partner if:

1. Both of you enter into an agreement to invest together, with some percentage investment also coming from the local and he claims to be the percentage owner due to that investment.

2. Both of you enters into an agreement where he is not investing anything but is party to your profit, this percentage of profit that you want to share with him may vary depending upon your agreement.

He will be a sponsor if:

1. You are not sharing any profit with him rather you are paying him some initial fee in the beginning of the year and he agrees to be with you to help you whenever required. This fee is called Sponsorship fee and this completely saves you to share any profit with him in future.

2. You cannot own the business (few sectors are open to the locals only like Oil and Gas, Real Estate, Legal and Audits). In this case, he will be the 100% owner of business, although only on paper because you have invested and you are protected by the law by giving you all the rights in the company.

Why do you need a Local Partner?

History: The Governments in these countries wanted to grow and progress but without education and experience their population cannot keep pace with the western world. Oil brought in a lot of expatriates to this region in search of business and work opportunities, the government introduced the local partner system to:

1. Control the expatriate population, their whereabouts, their visas, their responsibility etc indirectly, through its own people.

2. These locals became custodians of the expat population living in here and in return they started getting paid in terms of profitability or sponsorship fee.

3. Increased interaction with westerners make them hungry for modern age science, technology, and education and they started going abroad for higher studies etc.

4. Their level of understanding started to get a boost.

In return, the Expatriate was also getting huge benefits from this association. Few of the big advantages to having a UAE local fronting your firm.

1. There are financial benefits from the government in some sectors.

2. Quotas in various areas for companies with a local partner as a major shareholder.

3. access to important govt. offices and links.

4. Sectors like Oilfield & aviation etc available to Establishment of a local only.

5. It is also useful when collecting bad debts.

6. Easy getting new licenses.

7. maximum visas and permits.

8. Getting funded is easier and faster.

9. Language, connections, family links and being a local help if the company gets stuck somewhere.

Although there are many arguments for and against the local partner’s existence in the middle east business scenario, but few governments like Bahrain has taken the brave step last year and removed this system completely, the UAE, traditionally the pioneering Arab Gulf state, support it. The argument in favor of existing sponsorship system is the growth UAE has seen as compared to any other mid-eastern country, and a reason behind the relatively large population of approximately 90% Expatriates in the total population happily living here, earning and adding in the economy. Nationals do not shy away from sponsoring large numbers of expats regardless of what skills they possess, as long as they are paid an annual fee. Thus a win-win for all.

Samsun Godwin Consulting (www.samsungodwin.com) is offering Sponsors in four categories:

1. VVIP Sponsor: For Large corporate and bodies into big trade, the fee starts at AED half a million per year and goes up depending upon the nature and size of business.

2. VIP and Respected Sponsor: The fee will start from AED 50,000 and goes up to AED 500,000

3. Working Class Sponsor: Well placed locals, the fee in the range of AED 20,000 to AED 50,000

4. Affordable Sponsor: Nice young fellows who are willing to do something on their own and want to learn business with the experience of expats, the fee will be anything between AED 10,000 to AED 20,000.