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Corporate Tax Advantages For Small and Medium Scale Business Setups in Dubai

Corporate tax | Small and Medium-Scale Business

Dubai has proved itself as a top business hub, attracting large multinational corporations and small and medium sized enterprises (SMEs) worldwide. To support the growth and development of SMEs, the government of Dubai has enforced several measures, including introducing the corporate Tax (CT) law which offers a range of advantages to small businesses.

There is assistance for around 350,000 SMEs in UAE. To aid Small and Medium Scale Business, zero percent will be applicable, which is up to Dh375,000. As per the Ministry Of Finance spokesperson, the zero percent threshold recognizes the vital role of start-ups and SEMs in the UAE economy. 

The design of the corporate tax regime is to assist small and medium-sized businesses (SEMs) that can help to prosper and thrive in the economy’s future growth.

9% Competitive Rate

Corporate tax | Small and Medium-Scale Business

To keep pace with the demands of the competitive market economy and the global minimum tax rate, a standard rate of nine percent will be implemented effective for the financial year starting on or after 1 June, 2023.

A range of exemptions and reliefs have been added in the new corporate tax regime to facilitate domestic and cross-border investments while applying a nine percent competitive rate.

 The new corporate regimes have been designed to address administrative challenges for SMEs. It will be required that the UAE – based business file a single corporate tax return per tax period with related supporting schedules that need to be prepared and submitted to the Federal Tax Authority (FTA) for each corresponding tax period.

Considerable Duration Allotted

Up to 21 months from the beginning of the financial year, ample time is given to prepare for filing and tax payments. This demonstrates the government’s commitment to ensuring a seamless implementation of the CT regime.

Regardless of size, all taxable persons can carry forward tax losses incurred after initiating the corporate tax system without any time limit. However, in any subsequent tax period, the tax loss used to decrease the taxable income should be at most 75% of the taxable income for that period.

The upcoming CT regime may seem daunting to numerous SMEs. Nevertheless, significant public consultations have been conducted with vital SME stakeholders to confirm that businesses are fully prepared, and these will prevail during the CT implementation. You can also refer the Professional License in Dubai for additional information.

Ministerial Decision Regarding Small Business Relief

  1. Slight business relief can be declared by resident taxable persons whose revenue in the current and preceding tax periods does not exceed DH3 million for each tax period. Once a taxable person’s income surpasses the DH3 million threshold in any given tax period, they will no longer be eligible for small business.
  2. The revenue threshold of DH3 million will be effective for tax periods commencing from June 1,2023, and will apply only to the tax periods ending on or before December 31, 2026. 
  3. The determination of revenue can be based on the accepted accounting standards applicable in the UAE.
  4. Taxable persons can carry forward any Tax losses and disallow Net interest expenditure from tax periods in which they do not elect to apply for slight business relief. Such carried-forward amounts can be used in future tax periods in which small business relief is not selected as per the decision defining the tax periods.  
  5. The ministerial decision addresses the issue of the artificial separation of businesses, stating that if the federal tax authority determines that a taxable person has artificially separated their company or business activity and the total revenue of the entire business or business activity is more than DH3 million in any tax period. Such a person has opted for small business relief; it will be regarded as an arrangement to obtain a corporate tax benefit under clause(1) of Article 50 of the Corporate Tax Law’s general anti-abuse rules.

Conclusion

In conclusion, the Corporate Tax Law in Dubai provides several benefits for small and medium-sized businesses. Golden Fortune can assist you with any doubts regarding these and is a guide for setting up your small and medium business setup in Dubai. Contact us now!

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