Introduction
In recent years, the United Arab Emirates (UAE) has made landmark changes to its business ownership laws, ushering in a new era of opportunity for foreign investors. While Free Zones have long been the go-to choice for international entrepreneurs, mainland UAE is now becoming equally attractive thanks to reforms that allow 100% foreign ownership in many sectors.
This blog explores what’s changed, what it means for your business, and how to navigate the evolving landscape of local sponsorship and company formation in the UAE.
What Changed: From Local Sponsorship to Full Ownership
Historically, foreign investors could not own more than 49% of a mainland company in the UAE. A local sponsor, typically a UAE national, was required to hold the majority 51% stake. This model created dependency, risk, and legal complexities for many international businesses.
In 2020, the UAE introduced Federal Decree Law No. 26, allowing 100% foreign ownership for onshore businesses in a wide range of commercial activities. This groundbreaking reform effectively removes the sponsorship requirement in non-strategic sectors, giving global investors direct access to the UAE economy.
Mainland vs. Free Zones: What Should You Choose?
Many entrepreneurs still assume Free Zones are the only way to operate independently in the UAE. While Free Zones offer benefits like tax exemptions and full repatriation of profits, they also come with limitations:
| Free Zones | Mainland UAE |
| 100% foreign ownership | Now possible for many activities |
| Cannot trade directly in UAE | Can trade locally with no restrictions |
| Office required in Free Zone | More flexibility in location |
| Subject to Free Zone regulations | Governed by the DED (Department of Economic Development) |
If your business relies on local trade, retail, service delivery, or contracts with UAE government entities, setting up in the mainland is often the better choice.
Not All Activities Qualify – Here’s What to Know
Despite the changes, some business activities still require a local partner. These are generally considered strategic or sensitive sectors, such as:
- Oil and gas
- Military and defense
- Financial services (with specific regulations)
- Telecommunications
- Security and media
Additionally, professional service licenses (e.g., legal consultancy, medical practice) may still require a Local Service Agent (LSA) a UAE national who facilitates licensing but has no ownership or decision-making power.
Choosing a Reliable Local Partner or Service Agent
If your business falls under a category that still needs local sponsorship or agency, due diligence is critical. Here’s how to safeguard your interests:
- Vet local partners thoroughly for reputation, experience, and industry knowledge.
- Use corporate nominee arrangements via consultancy firms for safer, structured partnerships.
- Draft clear side agreements defining roles, revenue share, and exit clauses (with legal advice).
A professional firm can help mediate the relationship to ensure transparency, legal protection, and alignment of goals.
Compliance: Don’t Forget Regulatory Requirements
Whether you set up in a Free Zone or mainland UAE, your business must comply with several key regulations:
- Ultimate Beneficial Ownership (UBO) Reporting
- UAE Corporate Tax (9% from June 2023)
- AML (Anti-Money Laundering) standards
Failure to comply can result in fines, license suspension, or even legal action. Partnering with a local advisory firm can simplify this process and ensure you meet all the requirements.
Conclusion: The UAE is Ready for Global Business
The UAE’s move to allow full foreign ownership in the mainland is a powerful invitation for global entrepreneurs and companies to scale operations in the region. With strategic location, tax advantages, and a business-friendly legal system, the country is well-positioned to remain a top investment destination.
If you’re planning UAE market entry or expansion, take the time to understand the new rules, choose the right structure, and seek guidance to ensure compliance.
FAQ’S
Yes, for over 1,000 commercial and industrial activities, full foreign ownership is now permitted in the mainland UAE. However, some sectors still require local ownership.
Not necessarily. It depends on your business activity. Many sectors no longer require a local sponsor. However, a Local Service Agent (LSA) may be needed for certain professional licenses.
If your business targets local UAE markets, the mainland offers better accessibility. Free Zones are ideal for export-oriented, online, or international trade businesses.
An LSA is a UAE national appointed for certain professional licenses. They do not own shares and have no operational control, but are required for local representation.
Work with experienced business consultants who offer vetted sponsor networks, nominee structures, and legal safeguards to protect your business interests.
