The corporate tax regime is specifically designed to support small- and medium-sized businesses (SMEs) so that they can continue to thrive and drive the country’s growth in years to come, says a government official.

The spokesperson of the Ministry of Finance said the introduction of the corporate tax will support 350,000 SMEs in the UAE so that they could remain competitive in the market.

“To support SMEs, there will be a zero per cent tax rate for taxable profits up to Dh375,000. The zero per cent threshold has been included in recognition of the vital role of start-ups and SMEs in the UAE’s economy,” the spokesperson told Khaleej Times.

In addition to a 0% CT rate, he said SMEs with revenue below a certain threshold can claim ‘small business relief’ and be treated as having no taxable income during the relevant tax period and is provided relief in the form of simplified financial and tax reporting obligations.

To claim small business relief, an election must be made to the FTA. Additionally, businesses that has claimed the small business relief will not have to comply with the regime’s transfer pricing documentation rules.

9% competitive rate

To keep pace with the requirements of a competitive market economy and the global minimum tax rate, the corporate tax regime will be effective for financial years starting on or after June 1, 2023 and will levy a standard rate of nine per cent.

The new CT regime levies a competitive rate of nine per cent and provides a range of exemptions and relief to accommodate domestic and cross border investment.

“The new CT regime also minimises administrative challenges for SMEs. The UAE businesses will need to file only one CT return per tax period and any related supporting schedules need to be prepared and submitted to the Federal Tax Authority (FTA) for each tax period,” the spokesperson said.

While taxpayers should generally prepare their financial statements and determine their taxable income on an accruals basis, certain categories of individual entrepreneurs and SMEs can be allowed to prepare their financial statements on a cash basis.

Generous timeframe given

Taxpayers are given a generous timeframe of up to 21 months from the start of their financial year to prepare for filing and making tax payments. This timeline reflects the government’s commitment to ensure that the implementation of the CT regime is as smooth as possible.

“All companies, whatever their size, will also be able to carry forward any tax losses indefinitely to offset against future taxable income. For SMEs based in Free Zones, their tax treatment remains unchanged,” according to the spokesperson.

For many SMEs the prospect of the new CT regime may be daunting. However, extensive public consultations have been carried out with key SME stakeholders, and these consultations will continue during the implementation of CT to ensure that businesses are fully ready.

Public awareness workshops will also be carried out in every emirate of the UAE throughout the period from January 2023 to June 2023 and SMEs can access a wide range of support including guides, manuals, a call centre, webchat facility and SME-focused initiatives,” the spokesperson said.