Dubai: Should owners of small businesses in the UAE with annual revenues under Dh3 million sign up for the Small Business Relief package? Whereby they don’t have to pay corporate tax for a three-year stretch?
On the face of it, the answers seem obvious, with these business owners benefiting from having that 3-year cushion to further develop their operations without diverting any of their revenues on tax obligations.
But it may not be as straight-forward as that. According to Dr Nabeel Ahmed, Partner at DVS Management Consultancy, “Businesses considering the tax relief should analyse the impact on other corporate tax provisions such as the ‘tax loss relief’ and interest expenditure as these cannot be carried forward to any subsequent tax periods.
“A ‘cost benefit analysis’ should be carried in terms of what works best for a business, whether claiming relief would make better business sense. Or if a loss set-off could be a better option, should they anticipate higher revenues – and profits - in the subsequent tax period.”
Businesses considering the tax relief should analyse the impact on other corporate tax provisions such as the ‘tax loss relief’ and interest expenditure as these cannot be carried forward to any subsequent tax periods.
Ahmed is referring to the provisions in the UAE corporate tax laws that allow businesses to split up their payments over multiple years based on their interest expenditure, etc.
These are the decisions that SME owners and their auditors are weighing up, as more businesses in the UAE sign up for the corporate tax coverage.
Small businesses are mandated under the tax law to register with the Federal Tax Authority, irrespective of whether they opt for the relief package or not. (The UAE’s formal corporate tax regime went into effect from June 1.)
The relief programme for SMEs with turnover of under Dh3 million is one of the handful of benefits that such entities are entitled to under the tax incentives. What this does is give SMEs the extra flexibility of time to scale up operations.
“Ideally, it should be startups and early-stage businesses that should seek the tax relief program,” said a consultant. “They are the ones who will need those additional three years of tax exemptions the most. If these businesses are still in expansion mode – say a restaurant operating wanting to add another location – or have sizeable capital expenditure for the next three years, they can go ahead without worrying about taxes.”
The period would be from June 1, 2023 to December 31, 2026.
“SMEs that have started operations recently would greatly benefit by the Ministerial Decision on Small Business Relief as it allows the ‘resident taxable person’ to elect for the relief,” said Ahmed.
Clearly, SMEs would do well choosing a horse for course strategy on the relief.
“Having said that it does not absolve the resident tax person’s responsibility from registering with the Federal Tax Authority and filing the tax returns as applicable no later than 9 months from the end of the relevant tax period,” said Dr. Nabeel Ahmed.
“The option to elect for the Relief must be made by the resident taxable person and the revenue threshold provid only applies to tax periods commencing on or after 1 June 2023 and ending before or on 31 December 2026.”