Will Exempt Income be Included while calculating Small Medium Business Relief Threshold?
Jai Prakash Agarwal
??UAE Taxes & Compliances ??Systems & Technology ??All India Rank holder CA ??Vice Chairman - ICAI Dubai??Past Chairman-Dubai Chartered Accountants Students Ass. ??Ex-Infosys, Ex-Airtel, Ex-Tata Cummins, Ex-Aster
Dated: 26th April 2024
Weekend is coming up and after staying back home over last two weeks due to weather condition, this weekend you may have plans to unwind. Before you dive into weekend, we are sharing a small knowledge capsule for you.
We all know Small Business Relief is capped at AED 3 million and less. We also know that the cap of AED 3 million is for revenue (and not profits) but interesting is to ask ourselves, whether dividend income received from a UAE resident company in which equity investment was done by the registrant, will be considered in calculation of AED 3 million, as dividend qualifies as exempt income.
The instinct reply may be No, but we recommend seeking answer to an additional question before you arrive at the decision. The question is:
1. The legal type of the registrant in question – Is it natural person or company.
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If its natural person, this dividend income will not be considered. This is not by virtue of being exempt income under Article 22(1) of Federal Decree No. 47 of 2022, but by virtue of being personal investment income as per Article 2(2) of Cabinet Decision No. 49 of 2023.
If the registrant is a company, then dividend income will be added to total revenue to decide, whether the threshold of AED 3 million is breached and Corporate Tax is payable at 9% or not. This is because Article 22(1) cannot be applied for calculating total revenue as Article 2(4) of Ministerial Decision 73 of 2023 clearly states that revenue for the purpose of this Article shall be determined in accordance with the applicable accounting standards accepted in the State, which means that all revenue including exempt revenue will be considered.
Hope the above knowledge capsule was useful and let me end with asking you one question – The revenue threshold for audit is AED 50 million. While calculating the revenue threshold, what happens to dividend income here. Will the same be added while considering threshold by calling Article 2(4) of Ministerial Decision 73 of 2023 or dividend being exempt income, will not be considered.
Think about it and have a nice and happy weekend!!!
#UAECT, #CorporateTax, #LoveforLearning #UnderstandingCompliance
Great deliberation, Explanatory Guide, provides detailed definition of "Revenue", and dividend income is required to be considered as part of revenue. Extract: "The term “Revenue” refers to the total amount of gross income or gross receipts derived during a Tax Period as recorded in the Taxable Person’s books and records prepared in accordance with applicable accounting?standards. Gross income means all income earned from sources within and outside of the UAE, whether in cash or in kind, and without deducting any type of costs or expenditure. Revenue includes, for example, receipts from the sale of goods and services, royalties, Interest, premiums, dividends and other amounts received or recognised. In the context of the sale of goods or services, revenue means the gross income from sales or services without deducting the cost of goods sold or the cost of services?supplied, exclusive of Value Added Tax (“VAT”). For the avoidance of doubt, gross income does not mean Taxable Income."