24 Apr 2014

SME DEVELOPMENT IN THE UAE: AN OPPORTUNITY FOR LOCAL ENTREPRENEURS

Authored by: Mohammed Ali AlDahbashi

SME DEVELOPMENT IN THE UAE: AN OPPORTUNITY FOR LOCAL ENTREPRENEURS

The UAE Federal Government recently introduced a new Law (No.2) of 2014 regarding small and medium sized enterprises (“SME Law”) that seeks to support local entrepreneurs to start and develop businesses in the UAE. The SME Law was issued to support UAE nationals with ambitions to create successful projects and enterprises with the overall aim to develop small and medium enterprises (“SME”) into providing support for the development of the economy.
 
Mohammed Ali AlDahbashi, an Emirati Associate in Hadef & Partners Corporate team considers the new law and what this means for UAE nationals on starting businesses in the region.

1.     What is an SME?

The SME Law is its early stages and does not include a definition of an SME. It simply states that an SME will be classified by the number of its employees, its share capital and yearly returns. The Cabinet of the United Arab Emirates (“Cabinet”) will, upon consultation from the concerned sectors, issue a resolution defining what an SME is under the SME Law. The Cabinet will also issue a resolution to establish an SME Bureau in the UAE which will be the governing body of those SMEs that are subject to this new Law.

2.     SME Program

The Ministry of Economy (“MOE”) will create a national SME program (“SME Program”). The SME Program will act as the supporting body for the SMEs and provide various types of assistance to these organisations, with the main focus on:

(a) Liaising with competent authorities on drawing general lines regarding the provision of expertise as well as technical, administrative and training assistance in different fields to support projects and facilities.

(b) Preparing periodic assessment of the projects and facilities to be submitted to the SME Bureau, including challenges faced and reasonable solutions.

(c) Liaising with federal and local government authorities and with the private sector to market products and facilities inside the country and abroad.

(d) Liaising with relevant authorities to provide advantages and incentives for projects and facilities.

(e) Liaising with concerned regional and international authorities to support the development of the projects and facilities.

(f) Developing awareness programs to encourage the establishment of projects and facilities, and defining available and reasonable investment opportunities and risks as well as defining local and international exhibitions and to help participate in them.

(g) Establishing a database of projects and facilities, and classify them.

(h) Encouraging self-employment, joint cooperation and integration between projects and facilities.

(i) The SME Law will also have a bylaw that will identify further benefits for SME intellectual property rights.

3.     Who benefits from the SME Program?

The SME Law identified that only SMEs owned 100% by UAE nationals and registered in the SME Program can benefit from the SME Program. The SME Law will have a bylaw that will state the further requirements for this, including requirements on obtaining necessary insurance coverage.

4.     Benefits of the SME Program

In addition to the benefits the SMEs will receive from the assistance provided in the SME Program, SMEs that are registered in the SME Program will also gain the following incentives:

(a) Security, advertisement and marketing facilities provided by the private sector on the condition that they do not conflict with any financial or legal obligations.

(b) Commitment of federal authorities to contract with SMEs in the country, to the extent of not less than 10% of the total contracts, to meet their purchase, service and consultation needs.

(c) Commitment of companies which the federal government own not less than 25% of their share capital to contract with SMEs in the country, to the extent of not less than 5% of the total contracts in order to meet their purchase, service and consultation needs.

(d) Simplifying procedures, decreasing licensing fees and providing benefit of lands for industrial or agricultural purposes to owners of SMEs, in accordance with current legislation and in liaison with relevant authorities.

(e) Allocating areas in exhibitions in which the country participates abroad in order to exhibit national products and in which SME owners participate in and provide necessary information on external markets pursuant to regulations identified in the executive regulations of this Law.

(f) Establishing local specialized exhibitions or participating in other internal exhibitions for the purpose of advertising and marketing of the SMEs.

(g) SMEs may be exempt from customs duty on products such as machinery, raw materials and intermediate goods pursuant to a decision by the Cabinet and competent authorities in the member Emirates in the union, each within the limits of their competence in accordance with the Minister’s recommendations.

(h) Exempting projects and facilities from banking securities for the workforce used provided that the SME Cabinet identifies, in liaison with the Ministry of Labour, the necessary regulations and conditions for such exemption.

5.     Financing SMEs

The UAE Development Bank is planning to develop methods for financing SMEs under the new SME Law. The SME Law places an obligation on the UAE Development Bank to ensure that at least 10% of its annual financing is allocated to SMEs and the UAE Central Bank will issue further regulations on SME financing.

Overall Conclusion

The SME Law is a good start to an initiative by the UAE Government which will incentivise UAE nationals with ambitions to establish and develop successful businesses. The UAE clearly wants to support these SMEs and ensure they have a direct impact on the future growth of the UAE economy, however, the SME Law lacks details in a number of areas, including who will benefit from it, what the exact benefits are, and how these benefits will be implemented on a practical basis.  A laudable start and an area of opportunity I will personally watch with interest.

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE.