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Abu Dhabi, UAETuesday 19 June 2018

Lifting of corporate fines is boon for UAE business, analysts say

Dubai and Abu Dhabi have introduced a grace period to renew business licences

Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, and the Department for Economic Department in Abu Dhabi announced on Tuesday the suspension of corporate fines for businesses that had failed to renew their licences until the end of 2018.. Sarah Dea / The National
Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, and the Department for Economic Department in Abu Dhabi announced on Tuesday the suspension of corporate fines for businesses that had failed to renew their licences until the end of 2018.. Sarah Dea / The National

A decision by Dubai and Abu Dhabi governments to exempt businesses from corporate fines is a further boost for UAE companies grappling with high operating costs and the sticky residues of a challenging economic period, analysts told The National.

Together with plans announced last week to relax foreign ownership laws and grant long-term residencies to some UAE expats, “the government is clearly sending a message that it is trying to help on all fronts,” said Mohamed Abu Basha, head of macroeconomic research at lender EFG Hermes.

A decree by Sheikh Mohammed bin Rashid, the Ruler of Dubai, on Tuesday said the Department for Economic Development is cancelling fines imposed on businesses whose licences have expired until the end of 2018. Abu Dhabi said it will exempt businesses whose licences have not been valid for more than 24 months.

“This decree is a positive step in promoting economic growth and consolidating Dubai’s position as one of the most important commercial and economic centres internationally,” said Omar Bushahab, chief executive of business registration and licensing at DED.

The DED levies multiple fines for commercial violations, some of which could be worth thousands of dirhams. The UAE’s economy is recovering from muted growth in the past two years due to sustained low oil prices. GDP growth is expected to gather speed in 2018 and 2019, rising to 2.7 per cent and 3.1 per cent respecitvely from 1.5 per cent in 2017, according to the Central Bank of the UAE. However, rising inflation from the introduction of VAT in January and gradually increasingly oil prices has added additional costs on businesses.

At the same time, a slowdown in global economic growth in the past few years has put a strain on businesses, forcing them to make efficiency savings and curb growth.

The move to suspend fines on its own is not especially significant, as it will only benefit those businesses who have failed to renew licences, but it’s important given the context, Mr Abu Basha told The National.

“In the UAE, there has been a slowdown in credit growth for SMEs and registration of new businesses, and we’ve also seen an impact on the real estate market and rental yields,” he said. “Against this backdrop, businesses have been in the mood to try and reduce costs, so this decision to suspend fines is intended to encourage them to continue growing and remain in the UAE.”

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The UAE consistently ranks top in the Middle East in the World Bank’s annual Ease of Doing Business report and the government has introduced mechanisms recently to lower costs – such as encouraging free zones to reduce their registration fees, and providing support for start-ups and SMEs.

The corporate fines suspension is in line with initiatives by the government to bolster economic activity, and positive for the corporate sector, “which continues to face a number of challenges”, said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

The measures taken by the governments “are welcome at a time when everyone’s concerned about high operating expenses for SMEs in a slow market,” said Walid Shihabi, managing director of one of the UAE’s biggest holiday homes letting companies, Hometown Fund Management, based in Dubai. The degree of impact may vary depending on the type of industry or company, for example restaurant businesses may benefit more as they are typically exposed to more penalties and licensing requirements, he added.

However, obtaining visas for new staff is a bigger financial burden on small companies seeking to scale up, and Mr Shihabi would like to see those costs reduced.

Mr Bushahab from the DED urged companies to renew their licences before the end of the grace period.

“[The move] reaffirms to investors and businessmen around the world that Dubai effectively addresses various economic variables with a forward-looking vision by adopting best practices and regulations. It also helps to remove concerns among investors and entrepreneurs looking to expand their business,” he said.