United Arab Emirates: SMEs In The UAE

Last Updated: 27 September 2016
Article by Jonathan Silver

The UAE Cabinet has issued a unified definition of "small and medium enterprises" (SMEs) for the purposes of UAE law.

The importance of SMEs to the economy of the UAE continues to grow. Dubai SME, part of the Dubai Department of Economic Development, has reported that more than 22,000 small businesses were established in Dubai alone last year – an increase of 18% compared to 2014.

At the Federal level, the Minister of Economy has assured the Federal National Council that efforts to promote and nurture SMEs are ongoing, including government-backed marketing efforts overseas in China and Europe. It is hoped that these efforts will help mitigate the impact of the fall in oil prices.

Incentives for SMEs

Federal Law No. 2 of 2014 on SMEs (the SMEs Law) came into force in June 2014 and offers incentives to the development of locally-owned SMEs in the UAE. The SMEs Law provides for the establishment of a "SMEs Council", charged with promoting UAE SMEs and monitoring a "National Programme for SMEs". SMEs registered with the Programme will be entitled to various benefits, such as reduced licensing fees and simpler business procedures. Federal government entities also commit to sourcing 10% of their procurement requirements from SMEs.

What is a SME?

The recently published Cabinet Resolution No. 22 of 2016 (the Resolution) sets out the definition of a SME for the purposes of UAE law. The Resolution expressly refers to the SMEs Law and not to other laws. However, it is stated to be a "unified" definition, so presumably it applies wherever the phrase is used in UAE legislation.

The Resolution distinguishes between enterprises operating in the trading, manufacturing and services sectors as follows:

Trading Sector Manufacturing Sector Service Sector
Micro Enterprise

≤ 5 employees; or

≤ AED 3 million annual revenues

≤ 9 employees; or

≤ AED 3 million annual revenues

≤ 5 employees; or

≤ AED 2 million annual revenues

Small Enterprise

6 - 50 employees; or

≤ AED 50 million annual revenues

10 - 100 employees; or

≤ AED 50 million annual revenues

6 - 50 employees; or

≤ AED 20 million annual revenues

Medium Enterprise

51 – 200 employees; or

≤ AED 250 million annual revenues

101 – 250 employees; or

≤ AED 250 million annual revenues

51 – 200 employees; or

≤ AED 200 million annual revenues

The SMEs Council is to review these thresholds at least once every three years.

The employee and revenue thresholds for each classification are given in the alternative. It is not clear, however, which classification will apply where an enterprise meets criteria in two different classifications: for example, is a trading enterprise with 8 employees but a turnover of less than AED 3 million classified as "micro" or "small"? Equally, is it intended that a company with 150 employees but a turnover well in excess of AED 250 million is still classed as a medium company for all purposes?

Groups of companies

The Resolution does not explain how the definition of SMEs applies in the context of a group of companies, for example, whether revenues or numbers of employees should be calculated on a consolidated basis. It is also unclear whether the definition applies only to enterprises incorporated in the UAE, or whether the calculations should be based on numbers of employees located, or revenues generated, more widely, such as via a UAE company's foreign branches.

Other UAE Laws

Federal Law No. 4 of 2012 (the Competition Law) includes an exemption for SMEs – see further our recent bulletin " UAE Competition Law: Cabinet issues market share thresholds". The Competition Law itself, however, does not state whether this exemption is applicable only where all the relevant parties to a transaction or agreement are SMEs or if it is sufficient if one of the parties meets the definition.

Speculatively, the definition may be relevant for future tax or VAT legislation and possibly also for the much-anticipated new Federal Insolvency Law. It has been widely recognised that SMEs often struggle to obtain third party funding – Dubai SME reports that 80% of start-ups in 2015 were self-financed by the founders. The introduction of a more robust insolvency regime for UAE companies has been identified as one way to address this issue.

SMEs In The UAE

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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