Expense write-off or tax relief? UAE SMEs must choose wisely

TAX RELIEF FOR SMES COMES WITH A RIDER NO INTEREST EXPENSE DEDUCTION

- MANOJ NAIR

Small businesses in the UAE planning to sign up for a corporate tax relief programme now have clarity on how to handle interest expenses.

Companies with revenues of or under Dh3 million in any of the years between 2024 to 2026 can opt for the 'Small Business Relief programme. In doing so, they do not come under the corporate tax framework for the period up to end December 2026.

But if any company opts for SBR, it cannot deduct any net interest expenditure nor can it carry forward any net interest expenditure incurred during the tax period to any subsequent tax period. This is because under SBR, the companies are treated as not having any taxable income.

Carrying forward interest expenses

"Let's assume the SME decides not to sign up for SBR for the 2024 tax period, but has incurred interest expenses for the period, They can still access the SBR relief for 2025 and 2026 but the interest expenses unclaimed in 2024 cannot be claimed during these two years," said Girish Chand, Senior Partner at MCA Gulf.

"However, they can carry forward that expense from 2024 into tax periods after 2026." In fact, according to the Federal Tax Authority (FTA), the SME can carry forward that disallowed net interest expenditure for up to a further 10 tax periods.