The dilemma of running an SME in the UAE

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Liam Mooney highlights what he sees as the most serious issues facing SMEs in the UAE...

As the owner of a HR and Business Consultancy in the UAE, we are seeing a big increase in demand for our services and as such we will have to hire our own staff.

This, of course, is a positive situation but has focused my attention on where our company should be actually based. At times we find the UAE inflexible and expensive to do business.

Whilst on the surface the UAE has zero corporation tax, the hidden charges, red tape and inflexibility in the labour force actually make the UAE far less appealing than it should be.

The SME market is the lifeblood of the UAE economy and a huge contributor. The simple answer for some would be ‘if you don’t like it move to another country!’ However, our response is ‘why would the UAE want a company to move to another country when it’s contributing towards the GDP and having a positive effect?’

The UAE should be nurturing these companies and look at ways they can help.

I want to raise awareness of some of the difficulties that SME’s in the UAE face in the hope that many of them can be addressed.

The first issue is that of direct costs versus indirect costs

Direct costs

• Trade licence - Minimum AED15,000
• Salik (road fees)
• Visa costs
• UAE ID cards
• Labour cards
• Health cards (annual renewal with late fees applied from one day over)
• Enforced trademark (includes advertising in local papers)
• Forced property rental (regardless if required by operations of business)
• Branch licences (each Emirate is its own mini country with no linked government)
• Deposit (probably loosest term I have ever seen – when do you get it back?)
• Sponsorship of onshore company which means that 51 per cent will be owned by an Emirati as well as an annual trade license fee.
• Vehicle wrap renewals
• Vehicle registration and passing

Indirect costs

• ‘Typing’  (can be AED500 for a single piece of paper. Endless documents required for every process)
• Company stamps
• Translations
• Gratuity
• Repatriation
• RERA charges
• Bank charges
• Rising rent charges
• Rising water and electricity charges.

Overpriced services & monopolies

No competition means no value. Take Etisalat or du, for example. Services provided are extremely expensive and the quality can be poor.

Recently the government has announced a fourteen to fifteen percent rise in electricity and water to boost the green economy. I beg to differ on this. Water and electricity are essential when you live in a desert and perhaps something needs to be done more about car use. I don’t believe increasing electricity and water prices will make any difference on the green economy.

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Posted by: Bukhari

I am manager in a company and want to start my own company with some innovative ideas, but I am afraid of inflexible regulations and huge start up costs stated above. If you have any mater with any government department in UAE then you will learn more lessons that how youngsters sitting on the front desks will behave with you. I am not agreed that "The labour law is surprisingly very employee friendly." If as an employee you have a conflict/dispute with your company then you will also learn how "friendly" it is for employees as I have confronted such situation in Ministry of Labor and even in Dubai court itself.

Posted by: Jason Huf

I would agree with most of the points Mr. Mooney makes here, and emphasize one in particular: The unnecessarily complicated and nontransparent process for obtaining a trade license. Even the requirements for support documents filed with the application for a trade license can change suddenly, seemingly at the mere whim of the bureaucrat. As an attorney, this compels me to "pre-qualify" each and every application for a trade license with the folks in the relevant jurisdiction to bring such potential surprise requirements to the fore at the beginning of the process, thereby making them easier (and, less costly) to handle. Of course, this figures into a client's bill, and I tell them that in advance. For large, multi-national corps, its par for the course - just one of the frustrations associated with doing business in the developing world. For a small start-up (with the potential to be big), the inconsistency can be a serious turn off which, in turn, hurts the UAE's economy.

Posted by: Alan

Completely agree with Mr Liam and appreciate the well presented facts. Many SME owners face problems from 'sponsor' 'service agents' who simply do not answer calls when their signature is required to process a government transaction thus resulting in fines to the business (while they do not provide signing authority for govt depts) and even though such 'service agents' are not recognized as investors in the business however by default their signature is recognized in labor dept etc - this is an arrangement which needs to be amended that by default the expat owners signature should be recognized at govt dept. Although SME is the life blood of the economy most of the financially empowered (expat or natives) have one thing on their mind 'big'. The rule or application of rule is such that - the first one to complaint (to any govt dept) is likely to have the upper hand -example employee via labor dept.

Posted by: Liam Mooney

Some very good additional points made from Alex & Martin.

A point which came from our Fit for Business breakfast this morning with a government back dividend for any investor into an SME. The government can back the sectors that want to develop. In the UK for example the government gives tax breaks to investors who back SME's. The SME market in the UAE contributes massively to the economy. Why doesn't the UAE government pay a dividend to any investor who wasnt to back an SME. That would really stimulate the market! Lets be honest all the license fees etc are just taxes and the government can afford to back such a scheme with the monies that come in. Forget the banks they are simply not interested in small SME's simply because its risky and there is no profit in it for them.

Posted by: Alex

I would agree almost entirely with this, and how about when starting up, needing to run an actual Board Resolution to establish your 'Articles of Association' which I did with myself at the time (sole owner and employee back in 2010) just to set up a bank account?.

The SME financing is an issue, with banks not willing to play the game although advertising that they do, and the one you missed, contracts and professional indemnity insurance, which NO company ever honors but go through the motions to have agreed. Delay in payments to SME's is a critical issue, with no real regulatory solution to force people to pay according to contractual terms.

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