Small and medium enterprises or SMEs are the growth engines for the economy of a developing or even developed nation. In the UAE, several government resources have been provided for small businesses in the form of free or low-cost capital, free counseling, and free training and educational programs to promote entrepreneurship and innovation. To support SMEs further, the Federal Tax Authority (FTA) has launched a new tax initiative offering customized services, incentives, and privileges.
‘Muwafaq Package’ to Boost SMEs
The FTA has recently launched the ‘Muwafaq’ Package that includes a range of services and initiatives to improve tax compliance and ease of doing business in the small and medium-sized enterprises (SMEs) sector. Some of the incentives offered include:
Access to tax accounting programs and software at competitive prices
Immediate appointments with tax relationship managers
Special offers on tax agent services
Prioritized services for registered SME representatives
This package can be accessed by SMEs that are registered on the digital tax services platform EmaraTax. The initiative turns the spotlight on the SME sector and helps the FTA identify challenges faced by entrepreneurs, develop solutions as well as provide customized educational materials about tax procedures to promote self-compliance. Tailored for SMEs, the Muwafaq Package aims to promote entrepreneurship and innovation in the UAE by enabling motivated individuals and supporting the youth in the SME space.
Corporate Tax Regime and Classification of SMEs
The UAE corporate tax regime has introduced a tier system with rates as follows:
Tier 1: Businesses and individuals with annual taxable profits less than AED 375,000 shall be subject to a 0% tax rate.
Tier 2: Businesses and individuals with annual taxable profits above AED 375,000 shall be subject to a 9% rate.
Tier 3: All multinational enterprises (MNEs) that meet specific criteria under the scope of Pillar 2 (OECD Base Erosion and Profit Shifting Project) shall be subject to different rates.
For any company to avail these Muwafaq benefits, it must fall in the tier 1 category. Hence, it’s important to understand the classification of SMEs as per the ministerial resolution. Here are five conditions it outlines for any SME to be classified under tier 1 for five years:
The business owner, or all the partners, must be Emirati(s)
The enterprise must be a member of a government-accredited fund / program for supporting SMEs.
It must be managed by the owner, or by an Emirati manager.
The owner may not own or be a partner in another enterprise that is restricted by the ministry and has any fines.
The owner may not own more than five companies.
Decoding the Corporate Tax Regime
SMEs form the backbone of the UAE economy and are expected to drive its economic growth in the coming years. Recognizing their importance, the government has consistently introduced several economic measures to support these enterprises and recover from challenges posed by the Covid-19 pandemic.
Authorities expect Muwafaq to improve tax awareness among entrepreneurs who are still grappling with understanding the new corporate tax regime. In fact, the corporate tax (CT) regime has been formulated to aid SMEs so they can lead the economic growth of UAE in the years to come. Here are some highlights of the tax regime for corporates:
The introduction of the corporate tax will support 350,000 SMEs in the UAE to promote competition in the market.
To support SMEs, there will be a zero per cent tax rate for taxable profits up to AED 375,000.
The zero per cent threshold has been included to acknowledge the contribution of start-ups and SMEs in UAE’s economy.
For many budding entrepreneurs, the ramifications of the new CT regime may be challenging and intimidating. In light of this, the government has initiated several public consultations with key SME stakeholders to ensure that businesses are prepared for the CT regime. As a part of this initiative, public awareness workshops have been organized across the UAE from January 2023 to June 2023. Additionally, SMEs have been provided access to guides, manuals, a call center, webchat facility to ease the transition to the new CT regime.
Supporting SMEs to Promote Economic Growth
The UAE government has planned and launched a series of steps to boost the economy by fostering an attractive environment for foreign investment. These initiatives include easing visa rules, liberating company ownership rules and updating laws.
The Muwafaq package is also part of the FTA strategy to support the roll out of the Government Accelerators Project. Employing an innovative approach to government functioning, this project aims to implement major transformational projects in the UAE. The ultimate goal of these initiatives is to develop "the world’s best and most dynamic economy", as well aid major economic transformation across various spheres of government work.
Comments