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DUBAI: Setting a revenue cap of up to Dh3 million will provide significant relief for small and medium-sized enterprises, making it easier for them to enter the UAE’s corporate tax regime, according to industry sources. Just as importantly, the tax holiday will last until December 31, 2026.
The impression is that any relief for SMEs will be limited to businesses with an annual revenue of AED 1 million to AED 2 million. The AED 3 million cap therefore broadens the base of businesses that can claim and receive the corporate tax ‘small business relief’.
The procedure for applying for relief has not yet been announced.
But businesses seeking such relief need to revisit GAAR — or the General Anti-Avoidance Rule. Any failure in this regard and associated SMEs will face some serious risks.
A tax advisor said: “At a time when the focus is on global growth and what it means for the Gulf/MENA economies, the revenue cap and the time period offered – until the end of 2026 – offers a lot of opportunities for UAE SMEs to Great flexibility.” Headquartered in Dubai. “Several of these SMEs are just coming out of the shadow of Covid and are going through a phase where operating costs and capital costs are higher.
“They will need an additional year or two to stabilize their operations.”
On Thursday (April 7), the UAE Ministry of Finance announced the requirements that SMEs must comply with in order to receive relief. In particular, it states that the income threshold of AED 3 million applies for tax periods beginning on or after June 1, 2023, and continues to apply for tax periods ending on or before December 31, 2026.
“Compliance costs for businesses have been rising as the UAE has strengthened its compliance framework over the past few years,” said James Mathew, chief executive and managing partner of chartered accountancy firm UHY James. “The business environment in the UAE is estimated to have more than 550,000 SMEs operating in the mainland and free zones.
A large number of companies can take advantage of the small business relief if their income in the relevant tax period and previous tax periods is less than AED 3 million per tax period.
-James Mathew, UHY James
Learn more as soon as possible
“This decision, which is mainly aimed at encouraging start-ups, will be a very welcome one,” said Hany Elnaggar, associate partner at WTS Dhruva Consultants. “However, under certain conditions, it can only be used in the short term.
“Businesses need to be very careful about the conditions covered by the decision, especially GAAR (General Anti-Avoidance Rules).
SMEs eligible for relief can plan and manage their CT by considering exempt costs for the tax periods covered by the decision – but they will still need to plan for future periods.
– Hany Elnaggar, WTS Dhruva Consultants
“SMEs eligible for the relief can plan and manage their CT by considering the exempt costs for the tax period covered by the decision – but they will still need to plan for future periods.” (GAAR involves businesses purely to offset their Actual tax liability. In these cases, it has more to do with tax avoidance.)
Tick Profit and Revenue
UAE corporate tax – effective from 1 June 2023 – has given leeway to small and medium-sized enterprises, setting an annual taxable income limit of AED 375,000 and above.
“To a certain extent, UAE SMEs are given a top-line and bottom-line cushion in relation to their CT obligations,” said an auditor. “This will be an additional incentive for entrepreneurs to launch startups in the UAE, as they know their CT commitments and how they will be paid.”
- Actual tax savings: By the end of 2026, companies with higher net profit margins will receive certain tax and compliance cost savings.
- Ease of compliance: Eligible businesses will benefit from not preparing tax calculations (taxable profits derived from book profits) to determine their tax position for the year. Compliance costs have been rising steadily, and businesses that fall within the scope of the relief can save additional costs thanks to this favorable threshold limit.
Get Small Business Relief
According to the wording of the minister’s decision, “We understand that even if the income exceeds the threshold stipulated in Cabinet Decision No. 116 of 2022 (Dh375,000), if the taxpayer chooses to provide relief for small businesses,” said Atik Munshi, managing partner of Finexpertiza UAE.
“Residents can opt for SBR if their income during the tax period – whether in the period of assessment or the previous tax period – does not exceed AED 3 million. If elected, such tax relief is only applicable until December 2026 The tax period ends on March 31.
“Once the resident’s income exceeds Dh3 million, the assessee cannot apply for SBR in future periods.”
Everything is as clear as possible. For SMEs in the UAE, some of the big decisions that need to be made relate to what they should do for relief.
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