Tim Elliott
Welcome to Lawgical, the U.A.E.’s first, and still the only, legal podcast. My name’s Tim Elliot. Lawgical comes to you from the Dubai-based legal firm, HPL Yamalova & Plewka. As always, the Managing Partner, our legal expert, Ludmila Yamalova is with me. Nice to see you.
Ludmila Yamalova
Good to see you too, Tim. Thank you for being here.
Tim Elliott
This time, emiratisation, the current situation surrounding emiratisation, and we’ll also explain the NAFIS system too. That’s NAFIS, more on that to come. The background to start with, Ludmila, the government’s stated aim is to increase employment of Emiratis in the private sector 2% annually. The objective is 10% by 2026. Now historically, I think it’s fair to say we’ve seen a heavily Emirati public sector. These days, emiritisation really is a government initiative intended to encourage meaningful and efficient employment of Emiratis in the U.A.E. I think that’s a reasonable way to phrase it.
Ludmila Yamalova
Indeed, and specifically in the private sector because, as you rightfully said, Emiratis have historically been, if not the primary but certainly a significant percentage of employees and representatives of the government sector. Now, this particular initiative is aimed at introducing more Emiratis into the private sector. Perhaps the timing of this, by the way, there were a number of resolutions and regulations that have been issued recently, and even before then there had been some discussion about former emiratisation being introduced, so this is something that we had been hearing about and we were expecting in one form or another, and in the last year or so there were further regulations that now are placing those previously discussed plans and initiatives and ideas into action. Now it is formally here. By the way, among other things, the Ministerial Resolution 279 of 2022 which was issued only in June of 2022 and which now sets into place, not only the requirements, but also the deadline for when these requirements need to be implemented. As per this regulation, the deadline for compliance starts January 1, 2023, so very soon. This is why it’s important to talk about it. It is important to discuss it. It’s important to also understand what’s behind this initiative and how it’s going to potentially affect the private sector in the U.A.E. and the industry and economy here in general.
As you rightfully said, obviously the emphasis is here to increase the employment of Emiratis in the private sector, a gradual increase from 2% annually now to 10% in 2026. But if you compare it to some of our neighbors here in the Gulf, this is quite a modest and I think gradual implementation of the stated objective because as long as I remember, Saudi Arabia, for example, has always had the quota for the Saudis being employed in the private sector, and that was a known fact which the U.A.E. did not have until now. We were a lot more, perhaps flexible in that sense. But there are so many of us here in the country and expats do comprise the majority of the population, and we are obviously here, not just for the short term, but the likes of you and I, the dinosaurs, we are here for many years and we have no plans to leave. That must be because of one reason, because this country has welcomed us and has created the platform for us to work, to live, to have families, and to enjoy a quality of life. I would say from the perspective of fairness, it is only fair and expected that there is some expectation of the private sector and the companies to give back to the community in the way of now bringing in and integrating the local population, the U.A.E. nationals, into the private sector as well. I think at a theoretical and philosophical level, it’s to be expected, and it’s only fair.
Now, how it’s going to be done, at which levels, and what will be the repercussions when the regulations are not followed, that is a different topic, and we can talk about it further. But ultimately, I would say the initiative is expected, and I think if it’s implemented correctly it will only, and I say this with full sincerity, it will only bring positive change into the U.A.E. My personal goal is I hope that it helps train, educate, and integrate more Emiratis into the private sector. By virtue of these kinds of programs which are now – by the way, we will talk about this as well, which are not just the obligations to hire Emiratis but there are also a lot of programs that are offered to help companies integrate these Emiratis in the private sector and to ease the burden, if you will, or bring somebody in who you would perhaps otherwise would not have brought because they didn’t have the education or the professional experience that you would have otherwise needed. It’s not just the obligation of hiring, but there are also a lot of other benefits that are being offered along the way.
Tim Elliott
That’s important to highlight, I think. We’ll talk about the number of Emiratis to be hired, how it breaks down, penalties for noncompliance in a minute, but I think you hit on a good point. The issue for lots of companies is going to the right Emirati talent, as it is talent, wherever talent is from. What the government has done, is they are introducing a special program. It is going to offer financial assistance to the private sector to train and employ Emiratis. I mentioned it at the top of this podcast. It’s the NAFIS system, which translates to “compete.” This is a huge program. This is 24 billion dirhams, I think, that is being allotted to this. I know you have got some more detail. What does it actually include?
Ludmila Yamalova
This is it. It is quite important that we talk about it in the context of this initiative and efforts of emiratisation because in some countries at least there may be some sort of negative connotation or expectations with these kinds of forced or maybe hiring practices to be associated, but here it is not that all of a sudden private companies are obligated to hire Emiratis only because they are Emiratis, but rather this is a gradual process with a gradual increase in place.
As we would like for Emiratis to be more integrated and we understand that they may need time and training, so therefore (1) we are setting our objectives on a gradual basis from 2% to 10% over the next four to five years, and (2) we are now allocating, the government that is, is allocating significant financial support for those companies and for the private sector and for the Emiratis to help them train, learn, be educated, and benefit from these kinds of programs in a way that does not take away perhaps from the business’ commercial bottom line.
As you rightfully said, with this in mind, the NAFIS program was introduced. Nafis in Arabic means compete. There is quite a robust NAFIS platform. You can find more details about the program on the website at NAFIS.gov.au. It’s a platform basically that allows companies and employees to register and start exploring, applying, and benefitting from the various benefits that are part of this program. At a high level, these benefits and this program is funded to the tune of 24 billion dirhams, as you said. That’s about I think $8 billion. This money will be available to be used in a number of ways, for example, training of Emiratis for one year at 8,000 dirhams per month.
Let’s say I were to hire an Emirati for my law firm, or you wanted to hire an Emirati for your podcast business. I would normally not hire somebody in that position only because I need somebody experienced. I am a small firm. I don’t have the place for somebody with basically no background. This person would need training. It’s almost like university training. There is a person who wants to learn to practice law or to do podcasting. In this particular case, this program, the NAFIS program would allow this person to come and work for you, or for me, and then they would be paid by the program to the tune of 8,000 dirhams a month for one year. It is fairly significant. I will train this employee, or you will train, and the government will pay for them for the period of one year.
I think this is a win-win all around because it gives you as a company the ability to comply with the law, to explore the option of having another pair of hands on your staff, but you have financial support from the government to pay for the training that you perform and for the employee to actually learn on the job. Let’s face it, we all know that learning on the job is so much more efficient, effective, and practical than in the theoretical sphere.
In addition to training, there will also be additional salary support for Emiratis of 5,000 dirhams per month for the first five years of employment. What this means, let’s say that ultimately after one year of training this person, the government would be paying for this employee after I hired them fulltime, but you can only offer them a salary, let’s say, 30% below what I would be able to offer anyone else who could contribute fulltime, or at the level that I would want them to contribute. The government would supplement the salary of the Emirati to the tune of 5,000 dirhams per month for the first five years. Once again, it gives this reprieve to companies in exchange their obligation to hire people that perhaps might not otherwise have the experience that they would normally look for by virtue of paying them something, but maybe less than they would have to pay somebody else with more experience, but yet the employee would still be making money and would have additional support from the government.
Also, this NAFIS program has a special fund as part of it dedicated for specialized training programs, such as nursing and accounting, which means that the government is trying to encourage more Emiratis to go into nursing and accounting. That is pretty cool.
Tim Elliott
Yeah.
Ludmila Yamalova
In particular because – and you know this. I guess perhaps this is a great example to use, accounting or auditing. The U.A.E. in 2018 for the first time introduced the concept of tax by virtue of the value-added tax. Before then, there was no such thing. There was no tax. It didn’t exist in our lingo. Now there are additional discussions of an excise tax, additional discussions of a corporate tax coming, and tax is for the government. Historically and traditionally, as is the case in most other countries, these kinds of departments, these kinds of authorities should be employed by nationals and should be represented by nationals, but how many Emiratis out there who have studied tax? I would be very surprised because why would they have studied tax if there was no tax in the country before? You can see that is one interesting example. You can see that some of these accounting firms now would have the opportunity and also be incentivized to bring in some of these Emiratis and train them while the government is helping pay for it, and then by virtue of this program, now you have these Emiratis that are being trained in the particular industry in which they would not have had much experience before, such as auditing or tax. Fast forward five or six years from now, they will be fully trained. The special funds, the special programs and certificates with the NAFIS program is designed to encourage Emiratis, to explore nursing is another great example. Then as part of the program also there will be funding to encourage Emiratis to pursue various specialized and professional certifications. The program also has benefits, again these are benefits for Emiratis, in terms of national healthcare. If you as a company want to hire Emiratis as part of this emiratisation program, there may not be as much pressure, for example, to provide health insurance to the extent that you would normally have to do because Emiratis also have their own pension plan and they are entitled to different benefits. There will also be some national healthcare benefits through this program that is available to Emiratis and also the government will continue, through the NAFIS program, to contribute towards Emiratis’ retirement fund over the course of the first five years, which means that the pension which Emiratis are entitled to, and there is a pension plan and a pension system here that does not exist in the same way for the non Emiratis or expats here, but for Emiratis it does. As a private sector company that has not had to deal with a pension for Emiratis, now this is a new system. To that end, the government here is helping by continuing to contribute to the Emirati pension fund for these employees. Also as part of the program, the government will continue to support Emiratis with a child allowance during the employment, which also is a huge benefit, and that is to encourage people to maybe address the all too common for all of us parents, the matter of having to juggle kids and work, so this will be a special program indeed. Also, as part of the NAFIS program, there are unemployment benefits for those who lose their jobs in the private sector. That too will be funded by the government and Emiratis will be able to tap into that coverage.
To summarize the purpose of all of this, the objective of the NAFIS program, is to encourage ultimately Emiratis to take on unpaid opportunities, training courses, and contracts and take internships with private sector companies.
Tim Elliott
That’s really interesting to me because that’s an encouragement to, I guess, adopt a more private sector mentality, if anything. That is kind of focusing your mind on going in a different direction. That is the first step, isn’t it?
Ludmila Yamalova
Exactly. Some of the most interesting, I think, opportunities out there is when you can go and intern for one company or another or do some sort of training, but on-the-job training, not just in a classroom. Having now these options available for Emiratis, and yet be paid for them, does give that incentive and perhaps provides no excuse for not doing it. The hope would be that gradually they will, by virtue of being there on the ground, boots on the ground, on the job, that they will acquire interests and taste in these kinds of experiences more and more. As you said, there will be more embracing of the private sector.
Tim Elliott
That’s the right word to use actually because there are also the cultural aspects here as well. We have got people from all over the world in Dubai. We talk about this all the time, the 150 nationalities that live together in harmony. I think it’s more than 150 now, but the point is you have people of different cultures coming into an Emirati culture. Now to be able to share those in a company, to get that dynamic to work in a commercial fashion, at first that’s going to be hard, but once it happens, that’s a good thing. That’s a good life experience, as much as any.
Ludmila Yamalova
Absolutely. If you look back at other countries, the dynamics and the demographics of other countries, how they try to integrate different sectors of their population, very similar initiatives were put in place. Fast forward several years, decades, that is really the only way often to make change happen. You need a little bit of interference to help prod a paradigm shift on all fronts. I think ultimately, it’s a positive development, and if it is implemented correctly, I think it will quite an interesting area to see, and to experiment in a sense, to see how it develops over the next few years. Just one more thing on this NAFIS program, in order to benefit from it, for both employees, like Emiratis, and companies, from what we can see, it’s a fairly robust system or platform on the government’s website where you register, and at that point you apply for all sorts of grants, programs, funding, and you can post jobs there as well. It is through that system that you will be able to as a company in the private sector to advertise your positions to select and also to apply for different financial help.
Tim Elliott
I just wanted to come back to something just briefly before we finish up. Just the requirements for the number of Emiratis to be hired, 2% a year, 10% increase by 2026 in emiratisation terms, that’s the stated aim. But how does the number of Emiratis being hired, how does it break down in companies, just for the purposes of, I guess, completeness for the podcast?
Ludmila Yamalova
Yes. As of January 1, 2023, companies with 0 to 50 skilled workers are expected to hire at least 1 Emirati. Remember, the emphasis here is skilled workers, and it is not just the number of workers. If you are working at a construction company or a factory or workshop, the base here is the skilled workers. So, at 0 to 50, they are expected to hire at least 1. Companies with 51 to 100 skilled workers should hire 2 Emiratis. Those with 101 to 150 skilled workers must hire at least 3 Emiratis. Then those companies who have more than 151 skilled workers should hire 1 Emirati for every 50 skilled worker. That is basically the breakdown.
What’s very important to also emphasize is that this is all on the basis of a regulation, the Ministerial Resolution 279 of 2022 which was issued ultimately by the Ministry of Human Resources & Emiratisation, otherwise known as MOHRE. However, MOHRE does not have jurisdiction and authority over all segments of the private sector. For example, free zones are outside of the jurisdiction of MOHRE. Therefore, at least for the time being, in legal terms, these ministerial resolutions only apply to mainland companies and not free zone companies. Because free zones companies are not subject to MOHRE, and they are subject to their own free zone authorities, for example, the DIFC or the ADGM, with their own completely different set of laws altogether. While this is discussed in the context of the federal level, its application is limited for the time being to only those companies in the private sector which are subject to MOHRE, the Ministry of Human Resources & Emiratisation, which in relevant terms excludes free zones.
Now, finally in terms of the deadline and the penalties, the deadline again is January 1, 2023 and the penalties after that will be imposed on those companies who are not complying. The penalties will start from 6,000 dirhams per month for every Emirati who has not been employed and the penalty will increase an additional 1,000 dirhams per month every year after that, so the penalties can be fairly significant. As of 2024, they could be 7,000 dirhams per month for every Emirati that is not being hired.
Tim Elliott
There is going to be a fight for talent coming, isn’t there? That’s for sure.
Ludmila Yamalova
Indeed. A fight and competition. I’d like to think healthy competition.
Tim Elliott
I think so. That’s another episode of Lawgical, more details on emiratisation, the current situation with regard emiratisation, and the NAFIS platform, that is nafis.gov.ae. As the U.A.E. government aims to increase employment of Emiratis in the private sector by 2% annually and to 10% by 2026. Our legal expert, as ever, Ludmila Yamalova, the Managing Partner here at Yamalova & Plewka, and thank you.
Ludmila Yamalova
Thank you, Tim.
Tim Elliott
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