IFRS for SMEs in the UAE

Simplifying International Standards for Smaller Businesses

Small and medium-sized enterprises (SMEs) play a crucial role in the UAE's thriving economy. As businesses grow and seek financial transparency, adopting IFRS implementation in UAE becomes essential. However, many SMEs find full IFRS complex and resource intensive. To bridge this gap, the International Financial Reporting Standard (IFRS) for SMEs offers a simplified yet robust framework tailored for smaller businesses.

What is IFRS for SMEs? IFRS for SMEs is a simplified version of full IFRS designed for businesses that do not have public accountability. It streamlines financial reporting while maintaining compliance with global accounting principles. The key benefits include: income would be subject to withholding tax at the rate of 0%. Natural persons are only subject to Corporate Tax on the Taxable Income of their Business or Business Activity derived from the UAE, or from outside the UAE if it is connected to the Business or Business Activity being carried out in the UAE. Taxable Income is determined by applying the adjustments set out in Section 6.2.2 to a Taxable Person's annual Accounting Income, which should be taken from the Financial Statements that are produced in accordance with accepted accounting standards. Accounting standards that are accepted in the UAE for Corporate Tax purposes are the International Financial Reporting Standards (IFRS), or IFRS for small and medium-sized entities (IFRS for SMEs) for a Taxable Person with Revenue of AED 50,000,000 or less in the relevant Tax Period.

For those that already maintain accepted Financial Statements, these can be used in calculating Taxable Income and, provided evidence is maintained regarding any 113 Article 20(1) of the Corporate Tax Law and Article 4 of Ministerial Decision No. 114 of 2023. • Simplified reporting requirements • Reduced compliance burden • Enhanced financial transparency • Greater investor confidence • Easier access to funding

Why Should SMEs in the UAE Adopt IFRS? The UAE is a global business hub, attracting investors and facilitating international trade. Implementing accounting standards in UAE helps SMEs align with international practices, ensuring credibility and competitiveness. Here’s why SMEs should consider IFRS: • Regulatory Compliance: The UAE is continuously evolving its financial regulations, making IFRS adoption a forward-thinking choice. • Business Growth & Expansion: IFRS-compliant financial statements enhance credibility with stakeholders, aiding expansion into new markets. • Access to Capital: Banks and investors prefer businesses with transparent and standardized financial reporting. • Operational Efficiency: Streamlined accounting processes improve financial decision-making and resource management.

How to Implement IFRS for SMEs in the UAE

1. Assess Business Readiness Evaluate your business size, reporting needs, and current accounting framework. Consulting a financial expert can simplify the transition.
2. Train Your Accounting Team Ensure your finance team understands IFRS implementation in UAE by attending training programs or working with accounting professionals.
3. Transition Gradually Start with key financial statements and gradually integrate full compliance. Engage with a consultant to ensure a smooth transition.
4. Leverage Technology Modern accounting software can help SMEs automate compliance, reducing errors and improving efficiency.
5. Consult with Experts Partnering with accounting standards in UAE specialists can ensure a seamless transition while avoiding common pitfalls. Conclusion Adopting IFRS for SMEs in the UAE is a strategic move towards financial clarity, investor trust, and global business expansion. While the transition requires effort, the long-term benefits far outweigh the challenges. For professional assistance in implementing IFRS for SMEs, consult our experts at ICB Tax Consultancy to ensure compliance and financial success.