UAE President issues Federal Law No. 2 of 2014 for Small and Medium Enterprises
His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE, issued Federal Law No. 2 of 2014, for the Small and Medium Enterprises sector, to regulate the relationship between all government institutions and entrepreneurs of small and medium enterprises sector – a key component of any successful knowledge-based economy.
Commenting on the new law, His Excellency Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, confirmed that the Federal Law No. 2 of 2014, concerning small and medium enterprises issued by the UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan will play a significant role in promoting sustainable economic development in the UAE and strengthen its competitiveness regionally and globally. It will also support economic diversification and accelerate the country’s transformation to a knowledge-based economy that fosters creativity and innovation.
He added: “The law comes in line with the vision of the wise leadership of His Highness Sheikh Khalifa bin Zayed Al Nahyan, and His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, and their Highnesses Supreme Council members and Rulers of the Emirates, to create a conducive business environment for UAE nationals that enables them to establish their enterprises and contribute effectively towards promoting the sustainable development of the UAE and building on its many achievements.”
“In line with the objectives of the UAE Vision 2021, this is a modern law that will advance economic development based on the conviction that successful enterprises will increase the ability of the economy to achieve optimal performance, and in turn contribute to the social stability of the UAE’s nationals and residents.”
Al Mansouri affirmed that the new law aims to support and promote the development of the small and medium enterprises sector to become a key player in the economic development of the UAE, and contribute to instilling a culture of research, innovation and entrepreneurship in line with the country’s economic ambitions. “This will help improve the competitiveness of the small and medium enterprises, create new job opportunities for UAE nationals and encourage them to work in this sector, and contribute to the GDP of the country – promoting its position as a hub for entrepreneurship.”
His Excellency added that strengthening the role of small and medium enterprises sector is an important part of the development strategy of the UAE due to the important role of this sector in promoting sustainable development in the country and creating new jobs, especially for young people, nurturing the spirit of creativity and entrepreneurship amongst them, and supporting economic diversification.
He pointed out that the new law concerning small and medium enterprises represents a qualitative achievement in the ongoing efforts aimed at promoting the development of the business sector and achieving economic diversification. It also encourages young professionals to engage effectively in the business world and translate their ambitions into successful enterprises.
His Excellency added: “The new law aims to support economic development in the UAE, encourage entrepreneurship, strengthen and enhance the competitiveness of the country regionally and globally.”
He added that entrepreneurs can benefit from the facilities offered by the Council including finance, marketing and promotion. The law will help simplify the procedures related to these services, in addition to reducing licensing costs, and enabling them to benefit from land granted to them for industrial or agricultural purposes.
Other benefits offered by the Small and Medium Enterprises Council include the allocation of adequate space in the exhibitions that the UAE participates in abroad to showcase the national products made by local small and medium enterprises. The law also contains additional privileges and facilities for small and medium enterprises that focus on research and development and innovation, in addition to supporting patent holders in the country.
The Minister 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.
His Excellency 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 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 such as:
– ‘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 Program’ refers to the National Program 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 programs and initiatives aimed at the development of SMEs
– Stimulating and supporting citizens to enter the SME’s labor 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 Program 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 program’s membership
– Any other relevant tasks assigned by the UAE Cabinet
Titled ‘The National Program for SMEs’, Article (7) states that the UAE Cabinet must issue a decree to establish the National Program for SMEs within the Ministry of Economy.
Article (8) covers the program’s responsibilities, stating that the National Program 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 organizations 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 categorizing 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 Program 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 percent 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.
– Organizing local, specialized 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 Labor 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 program.
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 program. The Bank is obligated to contribute no less than 10% 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 organizations.
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 (AED5,000), and no more than five-hundred thousand dirhams (AED500,000).
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 gazette, and will be effective after three months from the date of publication.
For further information, please contact:
Tareq Al Marzouqi
Govt. Communication Department, Ministry of Economy
02 613 1140
Associate Director, APCO Worldwide
055 986 9766