Like their counterparts in other parts of the world, UAE business leaders are constantly striving to maintain focus on revenue-earning and business-critical activities. Yet many are distracted and deflected from this, spending endless hours on administrative activities. These typically fall into three categories:
- Managing the onerous requirements of a complex legal & regulatory framework
- Meeting the demands of the various external stakeholders in the business
- Ensuring the outputs of the company’s own finance and administration
function meet the needs of the business
This squeeze is particularly felt by the UAE’s small and medium-sized enterprises (SMEs) that often do not have the ‘in-house’ resources to adequately cope.
Thankfully, there is a solution.
But first, let’s assess the extent of the challenge.
Law and Regulation
Even though the UAE is widely considered to be a business-friendly environment, the law and the associated regulation applicable to businesses is extensive. Whether it be at a federal level or individual emirate level, whether it relates to mainland businesses, free zone businesses or both, whether it’s industry-specific or applicable universally, regulation abounds.
There is well-established federal legislation, and associated regulation, that applies to mainland companies on such matters as corporate governance, employment, bankruptcy, taxation, HSE, GDPR, the protection of workers, consumers and IP rights and anti-money laundering. Free zone companies, on the other hand, are governed in part by this federal legislation and in part by the legislation of the free zone authority in which the business is established. The extent to which free zone authorities self-legislate varies from free zone to free zone. DIFC, for example, is exempt from all UAE commercial and civil law, having its own laws in this regard, but subject to UAE criminal law.
In addition, specific industries have their own regulators and accompanying regulation. For example, banks, insurers and other financial institutions must adhere to the regulations of their four independent industry regulators and healthcare businesses to the regulation of the four independent regulators that oversee them.
What’s more, the situation is certainly not getting any easier. In line with UAE’s commitment to international tax cooperation and transparency, the recently introduced Economic Substance Regulations (ESR) require businesses undertaking certain prescribed ‘relevant activities’ to maintain an adequate ‘economic presence’ in the UAE and to file returns annually to demonstrate and justify this. In addition, the recent introduction of VAT has greatly added to the volume and complexity of the administrative burden, and this will be exacerbated by the imminent introduction of a Corporate Income Tax (CIT) from 1 June 2023.
Compliance to regulation requires meticulous attention to detail. Financial penalties for not submitting the required reports or forms on time can be significant and breaches of the laws themselves can have an existential impact.
Stakeholders
Government, of course, is only one of the stakeholders whose needs businesses strive to satisfy. Shareholders, employees, customers, suppliers, lenders and the communities in which businesses operate may all have their own individual demands for information. Customers may wish to know about service levels, employees about the financial performance and safety record of the company, shareholders will have a list of reporting requirements detailed in the shareholders agreement. In loan agreements, lenders will specify their information requirements which may include regular detailed historical and projected financial information, updates on assets pledged as security, details of other borrowing the company has etc. The local community may require project progress reports and information on job creation and environmental issues.
Finance and Administration
In an SME, very often the Finance Manager, or equivalent, may require significant input and oversight from the business leaders to ensure the satisfactory performance of the finance and administration function, meaning they get sucked into non-revenue generating activities such as budgeting and forecasting, management reporting, cash flow management, developing processes, procedures and systems, preparing business cases, maintaining relations with lenders, tax structuring etc.
So, what is the solution?
In many SMEs, the management of these issues falls to the most senior administrator in the company. That person may not have the attributes or experience to adequately meet this challenge. Typically, these SMEs are unable to justify the cost of a full-time CFO.
So, a potentially attractive option is to bring in a part-time, virtual CFO (vCFO, for short) who has the experience to rapidly assess the situation, put in place the processes and resources to tightly manage matters and remain on-hand thereafter for a few hours a week to ensure the smooth functioning of these activities. As part of this process, consideration could be given to outsourcing some of these activities to specialist accounting, tax, compliance and company secretarial service providers where it is not cost-effective to have full-time in-house personnel performing these activities.
Who we are?
Re/think is a boutique outsource and advisory company providing client-focused services in tax advisory, accounting, human resources, and business advisory.
We specialize in assisting clients with cost-effective, high-quality services and solutions. We create value by investing in highly qualified and motivated people and working closely with leading industry partners to provide our clients with a one-stop-shop for all their business support needs which is tailored to suit your individual requirements.
Authors
Neil Guthrie
Director of CFO and Advisory Services
