No. Since the 2021 Commercial Companies Law reform, most UAE mainland businesses no longer require a local sponsor or a 51 % UAE national partner. The Local Service Agent requirement for professional licences has also been removed in most activities. The few remaining cases where UAE participation is mandatory are limited to a short list of strategic-impact sectors. Last updated: May 2026.
For the full reform background, see 100 % foreign ownership in the UAE: how the 2021 reform changed everything. The broader UAE setup context is covered in how to start a business in the UAE: complete guide for foreign founders.
What was the UAE local sponsor requirement?
Before 1 June 2021, the UAE’s Commercial Companies Law required every mainland LLC to have at least 51 % of its shares held by a UAE national or a company wholly owned by UAE nationals. The foreign investor held the remaining 49 %. This structure was known as the local sponsor arrangement.
In practice, most local-sponsor agreements included a side letter — a private contract between the foreign investor and the UAE national — that redirected economic control and profit distribution to the foreign party. The UAE national received a flat annual fee (typically AED 15,000 to AED 50,000) in exchange for the 51 % shareholding that carried no operational control.
The Local Service Agent (LSA)
Professional licences — covering consulting, IT services, legal advisory, accounting, design, and other service activities — used a lighter structure called the Local Service Agent (LSA). The LSA did not hold shares and had no equity stake. Instead, the LSA acted as a registered intermediary between the foreign professional and the UAE government, signing certain administrative documents and facilitating visa processing.
The LSA received a flat annual fee (typically AED 5,000 to AED 15,000) and had no claim on the company’s profits, assets, or management decisions. The arrangement was simpler than the 51/49 model but still required a UAE national to be attached to the licence.
The corporate nominee variant
Some foreign founders used corporate nominees — licensed UAE companies that held the 51 % stake on behalf of the foreign investor. The nominee acted as a shell; the side agreement ensured full economic and operational control rested with the foreign founder. This structure was more expensive (AED 20,000 to AED 80,000 annually) but offered a layer of corporate separation that some investors preferred.
What changed in 2021 and why?
Federal Decree-Law No. 32 of 2021 — the revised Commercial Companies Law — abolished the 51 % UAE national ownership requirement for the majority of mainland activities. The law took effect on 1 June 2021 and was extended through Federal Decree-Law No. 20 of 2025.
The reform was driven by three strategic objectives:
- FDI attraction. The UAE government’s stated goal was to increase non-oil foreign direct investment by eliminating the structural barrier that had pushed foreign founders toward free zones. The 51/49 rule was the single most cited reason foreign founders chose free zones over mainland — removing it levelled the playing field.
- Ownership transparency. Side agreements between sponsors and foreign investors operated in a legal grey zone. They were enforceable in some courts but not others, and disputes were complex. Full foreign ownership made legal structures match economic reality.
- Competitiveness within the GCC. Bahrain had already opened full foreign ownership in 2017–2019. Saudi Arabia’s MISA framework was expanding. The UAE needed to maintain its position as the region’s default jurisdiction for international businesses.
The reform did not affect free zones, which had always permitted 100 % foreign ownership. It specifically targeted mainland incorporation — the jurisdiction through which businesses access UAE consumers, government contracts, and physical retail.
Do any UAE activities still require a local sponsor in 2026?
A small number of strategic-impact activities still require some degree of UAE national participation. These are not governed by the general Commercial Companies Law but by sector-specific federal regulations that override the default 100 % foreign-ownership rule.
Activities that still require UAE participation in 2026:
- Oil and gas exploration and production — upstream hydrocarbon operations remain under national oil companies
- Defence, military equipment, and explosives — federal government supervision
- Security printing and coinage — currency, passports, and official documents
- Certain retail banking activities — UAE Central Bank licensing for full retail banking (wholesale and fintech increasingly open)
- Pilgrimage services — Hajj and Umrah travel
- Commercial fishing in UAE territorial waters — reserved for UAE and GCC nationals
- Judicial services and notary operations
For all other activities — including healthcare, education, financial advisory, real estate brokerage, manufacturing, tourism, and general trading — no local sponsor, no Local Service Agent, and no UAE national partner is required.
What about professional licences in 2026?
The LSA requirement has been removed for most professional activities across all seven Emirates. A foreign consultant, IT service provider, designer, or accountant can hold 100 % of a professional licence directly.
A residual LSA requirement persists in a small number of Emirates for specific regulated professional activities, particularly legal practice. Founders should confirm LSA requirements with the relevant Emirate’s DED at the initial-approval stage — before committing to incorporation.
What is the difference between a local sponsor, a Local Service Agent, and a corporate nominee?
These three terms describe distinct legal arrangements that all existed under the pre-2021 framework. Understanding the differences matters because some legacy structures still exist in companies incorporated before the reform.
| Structure | Equity stake | Annual fee (typical) | Operational control | Applies to |
|---|---|---|---|---|
| Local sponsor | 51 % of shares | AED 15,000 to AED 50,000 | None (side agreement transfers control) | Mainland LLCs pre-2021 |
| Local Service Agent (LSA) | 0 % — no equity | AED 5,000 to AED 15,000 | None — administrative intermediary | Professional licences pre-2021 |
| Corporate nominee | 51 % of shares (via company) | AED 20,000 to AED 80,000 | None (nominee agreement transfers control) | Mainland LLCs pre-2021 (complex variant) |
None of these are required for new incorporations in 2026 in non-restricted activities. They may still be encountered in companies incorporated before 1 June 2021 that have not yet restructured.
A fourth category — voluntary corporate nominee services — still exists as an optional service. Some foreign investors voluntarily appoint a UAE corporate entity to hold shares on their behalf for privacy, administrative convenience, or specific holding-structure reasons. This is a commercial choice, not a legal requirement.
What happens to existing local sponsor agreements?
Companies incorporated before 1 June 2021 under the old 51/49 structure have three options in 2026:
Option 1 — Restructure to 100 % foreign ownership
The foreign investor acquires the UAE national’s 51 % stake. The process involves:
- Negotiating a buyout with the local sponsor — often at the nominal value specified in the original side agreement
- Drafting an amended Memorandum of Association reflecting 100 % foreign ownership
- Filing the amendment with the relevant DED
- Updating the commercial register, FTA registration, MOHRE records, and bank signatories
According to restructuring specialists, the typical buyout cost ranges from AED 10,000 to AED 100,000 depending on the leverage position of the local sponsor and any outstanding contractual obligations. Disputes are handled by the UAE commercial courts or, if both parties agree, through arbitration.
Option 2 — Maintain the existing structure
The old 51/49 structure remains legally valid. Companies that have a functional relationship with their local sponsor and wish to avoid restructuring costs can continue operating under the existing MOA. The local sponsor retains their 51 % shareholding on paper, and the side agreement continues to govern economic control.
Option 3 — Dissolve and re-incorporate
Some foreign founders choose to dissolve the old entity entirely and re-incorporate under a new 100 % foreign-owned structure. This is typically chosen when the local sponsor relationship has broken down, when the side agreement is disputed, or when the founder wants a clean corporate history.
Dissolution involves FTA de-registration, MOHRE labour-card cancellation, visa cancellation for all sponsored individuals, final-account audits, and formal DED licence surrender. Re-incorporation then follows the standard six-step process.
Frequently asked questions
Can a UAE local sponsor block a restructuring to 100 % foreign ownership?
A local sponsor can refuse to sell their shares. However, if a valid side agreement exists that establishes the sponsor’s role as purely administrative and grants the foreign partner the right to acquire shares, UAE courts have increasingly enforced such agreements since the 2021 reform. Legal counsel is recommended for contested cases.
Does the 2021 reform apply to existing companies automatically?
No. The reform permits 100 % foreign ownership but does not automatically restructure existing companies. The foreign partner must actively apply for a share transfer and DED amendment.
Is a local sponsor still needed for a UAE branch office?
No. A foreign company can open a branch office in the UAE mainland without a local sponsor under the 2021 reform. A branch office is not a separate legal entity — it operates as an extension of the foreign parent company and requires registration with the DED and the Ministry of Economy.
How much does it cost to remove a local sponsor?
Removing a local sponsor typically costs between AED 10,000 and AED 100,000 in negotiated buyout fees, plus AED 3,000 to AED 8,000 in DED amendment and MOA notarisation costs, and AED 2,000 to AED 5,000 in legal advisory.
Sources and further reading
- Federal Decree-Law No. 32 of 2021 — UAE Commercial Companies Law, effective 1 June 2021
- Federal Decree-Law No. 20 of 2025 — Amendments to the Commercial Companies Law
- Dubai Department of Economy and Tourism — Restructuring and ownership-transfer procedures (invest.dubai.ae)
- Abu Dhabi TAMM Platform — MOA amendment process (tamm.abudhabi)
- UAE Ministry of Economy — Foreign ownership framework and branch-office registration (moec.gov.ae)