New law to help create more jobs for Emiratis
Minister of Economy Sultan bin Saeed Al Mansouri says he expects the law will go into effect within the next three months after approval by the Federal Cabinet.
The UAE has finalised a new law to boost entrepreneurship with broad incentives as part of a wider push to create jobs for a burgeoning young population, Minister of Economy Sultan bin Saeed Al Mansouri said on Sunday.
Addressing a news conference in Abu Dhabi, Al Mansouri said he expects the law will go into effect within the next three months after approval by the Federal Cabinet. The Federal law No. 2 of 2014, issued by the President, His Highness Shaikh Khalifa bin Zayed Al Nahyan, is aimed at encouraging job creation by helping Emiratis start small and medium-sized businesses.
Incentives offered to citizens will include access to finance, contracts with state-owned companies, land grants for industrial and agricultural purposes, as well as exemptions on customs duties for raw material and equipment.
The law will open avenues for Emiratis to venture into small and medium businesses to create livelihood for themselves and boost the economy. “The law will play a significant role in promoting sustainable economic development in the UAE, strengthening competitiveness and support further economic diversification and accelerate the country’s transformation to a knowledge-based economy,” Al Mansouri said.
In line with the government’s policy of creating jobs for Emiratis, Al Mansouri said the landmark law would encourage UAE nationals to use their leadership skills and benefit from the incentives offered to them to create job opportunities.
Benefits include land grants for industrial or agricultural purposes and exemption in customs levies.
Emirati entrepreneurs falling under the ‘small and medium’ classification will benefit from credit and funding facilitation, financing, marketing and reduced licensing costs, the minister said.
The draft law also requires government agencies to contract at least 10 per cent of their needs with these firms. Companies in which the state owns more than a 25-per cent stake would have to contract at least five per cent of their purchasing, service and consulting needs with these firms.
This incentive will provide a substantial amount of business to the SMEs, who would not have to look for business.
The SMEs in the manufacturing sector will get extra incentives in the shape of exemptions in customs levies on importing plants and machinery, raw materials and intermediate goods, Al Mansouri said.
Exemption will be provided on bank guarantees that companies pay while recruiting a new worker.
In order to encourage Emiratis to enter into SMEs, the procedural bottlenecks would be removed by simplifying the rules for their businesses, in addition to reducing licensing cost.
According to the law, the ownership of the SME venture cannot be transferred without the approval of the competent authorities and those who will breach the law may be fined no less than Dh5,000 and no more than Dh500,000.
A SME Council will be established, he said and “the Cabinet will issue the executive regulations that will determine the frameworks and mechanism regarding the facilities and the incentives offered to owners of SMEs.
In addition, “a National Programme for SMEs will be announced later this year”, the minister said.
The backbone of any country’s economy small and medium enterprises contributed more than 60 per cent to the country’s GDP in 2011.
Today, however it represents almost 92 per cent of the total number of companies operating in the country.
As many as 300,000 UAE-based SMEs are currently providing over 86 per cent of employment opportunities in the private sector alone.
The Minister of Economy commended the efforts of all those who support the small and medium enterprises sector and entrepreneurs, specifically the Khalifa Fund for Enterprise Development, Dubai SME, and other leading national institutions across the UAE.
He expressed confidence that the new law would draw the attention of citizens towards SMEs, and offer a legislative framework that supports and encourages them towards entrepreneurship and initiating new business start-ups.
The minister also stressed that SMEs have a prominent role to play in the UAE’s overall economic structure and noted that the new law regulates the provisions related to these enterprises. Furthermore, the new law will contribute to the role of the Emirates Development Bank in augmenting the national economy by supporting SMEs, securing the financial resources they require, and enhancing the cooperation and coordination between the various entities involved in supporting them.
Article (1) of Law (25) defines some of the terms and terminology prescribed by the law as follows:
- ‘Enterprises and Establishments’ refers to any company or individual enterprise engaged in small economic activity (including micro and medium)
- ‘The Council’ refers to the Small and Medium Enterprises Council
- ‘The Programme’ refers to the National Programme for Small and Medium Enterprises
Article (2) explains the objectives of the law that seeks to achieve the following:
- Nurturing of SMEs as a major contributor to the economic development of the country
- Dissemination of information about the law and encouragement of research
- Innovation, creativity, and fostering a culture that stimulates entrepreneurship
- Coordinating the efforts of various entities involved in the development of SMEs
- Boosting the competitiveness of SMEs to provide employment opportunities
- Creating programmes and initiatives aimed at the development of SMEs
- Stimulating and supporting citizens to enter the SME’s labour market to contribute to the country’s GDP
- Strengthening the country’s position as an entrepreneurial hub
Articles 3 and 4 classify and define micro, small and medium enterprises. Article (3) stipulates that the Council will classify SMEs based on two or more of the following criteria:
- Employment size
- Size of annual returns
- Capital investment
Based on the recommendations of the SME Council, the UAE Cabinet may add any other criterion to those listed in item 1 of this article, given the nature and type of the economic activities of the enterprise.
Titled ‘Unified definition of SMEs’, Article 4 indicates that the UAE Cabinet must issue a decree on the unified definition of SMEs, based on the recommendations of the SME Council, in consultation with competent local authorities.
Titled ‘SME Council’, Article 5 states that the UAE Cabinet must issue a decree to establish the governing body of the SME Council under the Ministry of Economy, chaired by the UAE Minister of Economy and with the membership of representatives from relevant public and private sector authorities, which will determine the Council’s work regulations and decision-making mechanisms.
Titled ‘Competences of the Council’, Article 6 stipulates the creation of policies and strategic plans towards the development of SMEs based on the following:
- Developing the rules and regulations to coordinate between the National Programme for SMEs and other stakeholders
- Monitoring the performance indicators of the program and approving its annual report on SMEs
- Periodic review of the effectiveness of the SMEs, classifying criteria to propose the appropriate amendments and submitting them to the UAE Cabinet
- Setting conditions and criteria for the programme’s membership
- Any other relevant tasks assigned by the UAE Cabinet
Titled ‘The National Programme for SMEs’, Article (7) states that the UAE Cabinet must issue a decree to establish the National Programme for SMEs within the Ministry of Economy.
Article (8) covers the programme’s responsibilities, stating that the National Programme for SMEs is responsible for coordinating with concerned authorities in drawing up the general guidelines related to the provision of expertise, technical, administrative, and training assistance in various fields to support and develop SMEs, including:
- Preparing a periodic evaluation report and submitting it to the Council highlighting the challenges faced and suggesting the appropriate solutions
- Coordinating with federal and local government entities and the private sector to market SME products inside and outside the country
- Coordinating with the concerned authorities to provide benefits and incentives for SMEs
- Coordinating with the relevant regional and international organisations to support the development of SMEs
- The development of awareness programs to encourage the creation of SMEs and promoting the investment opportunities available
- Explaining the risks involved and supporting the participation of SMEs in local and international exhibitions
- Creating and categorising a database of registered SMEs
- Encouraging self-employment, joint cooperation and integration between SMEs
- Approving requests for granting concessions to members of the program through funds, institutions, projects and local entities
- Any other related tasks determined by the SME Council
Under the title, ‘SME Programme Registration’, Article 9 provides that the National Program for SMEs, in cooperation with the concerned authorities, is responsible for registering SMEs wishing to join the program after fulfilling the conditions and criteria determined by the SME Council, and to update the Council with the registration data periodically.
Article 10 of the new law focuses on the private and public sector facilities and the incentives offered to owners of enterprises that are members of the National Program for Small and Medium Enterprises, including:
- Finance, marketing and promotion from the private sector, provided associating with these facilities does not conflict with any financial or legal obligations
- Commitment of Federal Government entities to contract with local small and medium enterprises by not less than 10 percent of the total contracts of these entities towards meeting their purchasing, servicing and consulting needs.
- Commitment of companies in which the Federal Government owns more than 25 per cent of the total capital, to contract with local small and medium enterprises by at least 5 percent of the total contracts of these companies.
- Simplify the procedures related to these facilities, in addition to reducing licensing costs, and enabling them to benefit from land granted to them for industrial or agricultural purposes, in accordance with relevant legislations and in coordination with the concerned authorities.
- The allocation of adequate space in the exhibitions that the UAE participates in abroad, to showcase products made by national small and medium enterprises, and providing necessary information to them about international markets in accordance with the regulations prescribed by this law.
- Organising local, specialised exhibitions for small and medium enterprises or facilitating their participation in domestic exhibitions to promote and market their products.
- Permissibility of exempting small and medium enterprises, for production purposes, from customs tax for equipment, raw materials and intermediate goods, through a Cabinet resolution issued by relevant UAE authorities and Union members, each in his/her own capacity, based on the recommendations of the Minister of the Economy.
- Exempting small and medium enterprises from bank guarantees that companies must pay per new worker. The Small and Medium Enterprises Council will coordinate with the Ministry of Labour to implement the regulations and conditions required in this regard.
Article 11 tackles implementing the strictures ( 4, 7 and 8) of the preceding article, over three years of getting the membership of the National Program for Small and Medium Enterprises, and the extension of the benefit period over one year, renewable for additional term/s.
Article 12 of the law specifies additional facilities provided, which include: Taking into account copyright regulation laws, executive regulations of the law identify the additional facilities granted to small and medium enterprises that have special departments for R&D and innovations, and have achieved economic success, as well as to inventors and patent owners in the country.
With regards to combining facilities and incentives, Article 13 states: Small and medium enterprises owned by UAE nationals may combine facilities and incentives provided by both federal and local entities and the private sector.
Article 14 deals with the conditions related to facilities and incentives, and states: In order to benefit from facilities and incentives, small and medium enterprises and establishments should be fully and privately owned by UAE nationals, and be participating members of the programme.
According to Article 15, small and medium enterprises and establishments are committed to the following:
Using facilities and incentives solely for their specified purpose, without changing the enterprise or establishment or transferring its ownership to other parties without the approval of the concerned entity, in addition to being transparent and disclosing all information to the concerned parties.
According to article 16 titled ‘Insuring Establishments’, owners of small and medium enterprises and establishments who wish to receive facilities and incentives need to insure their establishments at a licensed and registered insurance company within the UAE , depending on the type of insurance specified by the executive regulations of this law.
Article 17 addresses the methods of facilitating credit and funding services for activities undertaken by small and medium enterprises and establishments, and states the following: The Emirates Development Bank cooperates with the Small and Medium Enterprises Council in setting procedures for credit and funding facilitation for enterprises and establishments that have joined the programme. The bank is obligated to contribute no less than 10 per cent of its total annual financing facilities to small and medium enterprises that are part of the program.
With regard to the procedural and technical criteria for receiving loans, Article 18 of the law stipulates that the UAE Central Bank is to establish procedural and technical standards for providing commercial loans to owners of small and medium enterprises.
Furthermore, Article 19, titled ‘Annual Evaluation of the small and medium enterprises sector’ states that concerned parties are required to carry out an annual evaluation that seeks to ensure a supportive and enabling environment for small and medium enterprises and establishments, through developing fast and effective services and facilitating procedures that enhance the UAE’s competitiveness on a global scale. A report of evaluation results is to be submitted to the Council.
Article 20 of the law clarifies that the Ministry of Economy, in cooperation with concerned parties, is the lead representative of enterprises and establishments in other countries and global and regional organisations.
Article 21 on fee exemption states that the Cabinet will be responsible for exemptions of federal fees for small and medium enterprises, in addition to stipulating the duration of these exemptions.
Article 22 titled ‘Penalties’ states the following: Without prejudice to any other penalty stated by other laws, any owner of a small and medium enterprise who breaches any ruling of Article 15 is to be fined no less than five thousand dirhams Dh5,000, and no more than five-hundred thousand dirhams Dh500,000.
According to Article 23, the Cabinet issues the executive regulations of this law for three months of its operation, and in accordance to Article 24, all rulings that contradict this law will be annulled.
Article 25 states all SME regulations are to be published in the official gazette, and will be effective after three months from the date of publication.