SMEs currently form the backbone of the UAE economy and although much has already been put in place to support the growth and subsequent success of SMEs, some hurdles still remain.
RED TAPE IN OPENING BANK ACCOUNTS
SMEs in the UAE can face rigorous compliance checks when trying to open bank accounts and it takes great patience to endure months of KYC due diligence and break through the red tape. Some SMEs have reported that it can take up to 6 months to successfully open an account.
Banks require all bank accounts owners’ details to be divulged and if the owners are corporate owners, their ultimate beneficial owners details must be declared. If the owner is a Trust, then the Trust company’s documents but be notarised and legalised and the Trust Deed must be divulged. All this has arisen due to FATCA and necessary adherence to Common Report Standards but more often than not, banks in the UAE err on the side of caution and refuse to accept any opening of bank accounts of some corporate entities.
SAFEGUARDING COMPANY ASSETS
It is very important for SMEs to put plans in place plans to safeguard company assets. It’s therefore wise to seek reliable legal support or to closely monitor legislative or regulatory changes
One case in point that directly affects SMEs was recently implemented in February 2016 by the Personal Status Court of the Dubai Courts and could result in the freezing of company accounts.
This change in law relates to the demise of individual shareholders of companies or establishments located in Dubai. If the deceased is an individual partner or shareholder, then the company account will now be frozen until the Court makes further decisions in this regard.
Ultimately this change in the inheritance process can affect the smooth operation of an SME in which there are living partners continuing to operate the day-to-day business. What is more, this new stance taken by the Court applies to all companies, including those in free zones and to both Muslims and non-Muslims. The best advice is to either seek legal advice or for companies to structure shareholding properly, have multiple signatories for all bank accounts and have offshore holding companies.
Hopefully the system will become more transparent in years to come and similar to civil code countries where laws are subject to the interpretation of Judges. This means that matters that can be reduced to straightforward cases, such as Inheritance, can follow a precise set of applications and issuance of orders. In the meantime, SMEs should keep abreast of developments.
AVOIDING ‘ILLEGAL LEGAL’ SERVICE PROVIDERS
SMEs should always find reliable legal advice so that they are not misled. Choose your counsel wisely as there have multiple incidents of illegal legal service providers. The issue there has been insufficient proper regulatory enforcement against such providers. Hopefully this will change.
The Legal Affairs Department has issued new regulations which came into effect in November 2015 (following on the Execution Resolution issued in 2011) which states that legal services must be provided by licensed legal consultants and advocates.
Even visiting lawyers who advise on cases in the DIFC Courts, for example, must register with them. However, we see constant breaches of such regulations by those so-called lawyers who are licensed in RAK, who are unregulated and do not carry any proper professional indemnity insurances. We see will-writing companies and trust companies offering legal services and they market themselves aggressively. These companies sometimes use scare-mongering tactics spreading untruths and rumours.
As the UAE incubates more and more SMEs it will be critical moving forward to enforce the regulations against such non-compliant entities, fine them and if required, close down such companies. Finally, caveat temptor, consumers beware: all SMEs should ask the company providing legal services to provide their up-to-date Licenses issued by the Government of Dubai.
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