Corporate Tax and IFRS for SMEs implications

The purpose and scope of the IFRS for SMEs Standard:

The IFRS for SMEs Standard is a simplified set of accounting standards for small and medium-sized enterprises that do not have public accountability and that need relevant, reliable, and useful financial information. It is based on the full IFRS Standards but omits or modifies some topics and requirements that are less relevant for SMEs. It is a type of relief for small businesses and aims to provide a high quality and understandable framework that meets the needs of the users of SME financial statements and reduces the cost and burden of compliance for SMEs. It also allows easier transition to full IFRS Standards if an SME decides to become a public listed entity.

New corporate tax in UAE and Saudi Arabia has allowed Small and Medium Size Entities to implement IFRS for SMEs for their books. Although the standard has not provided a universal definition of an SME, but rather leaves it to the national regulatory authorities and standard setters to specify more detailed criteria. However. the standard is intended for entities that have no public accountability, meaning that they do not issue publicly traded securities or hold assets in a fiduciary capacity. Entities that are eligible to use the standard must apply it in its entirety and cannot cherry pick between the requirements of the standard and those of full IFRS Standards.

The main differences between the IFRS for SMEs Standard and the full IFRS Standards:

The IFRS for SMEs Standard has less recognition and measurement requirements, such as

• Goodwill and other indefinite-life intangibles are amortized over their useful lives, but if useful be reliably estimated, then 10 years.

• A simplified calculation is allowed if measurement of defined benefit pension plan obligations projected unit credit method) involves undue cost or effort.

• The cost model is permitted for investments in associates and joint ventures.

The structure and format of the IFRS for SMEs Standard:

The IFRS for SMEs Standard is a self-contained document that is organized by topic, with 35 sections covering various accounting issues. The standard uses simplified language that is easily translatable and provides explanations and examples. The standard also contains a section on transition, which allows some exemptions and impracticability exceptions for first-time adopters. The standard does not address some topics that are not relevant for SMEs, such as

• Earnings per share

• Interim financial reporting

• Segment reporting

• Insurance (because entities that issue insurance contracts are not eligible to use the standard),

• Assets held for sale.
  
  

Similarly, some accounting treatments, like the capitalization of borrowing and development costs, are not allowed and the cost would be expensed out. So, SMEs have access to simpler accounting methods than those required by full IFRS Standards.

To know more about the how IFRS for SMEs can help Small businesses to remain compliant with Corporate tax applicable in Saudi Arabia and UAE our team of qualified accountants are just one call away. Feel free to reach us out.

Email us at group@eighty20.me or Call Us at +971 55 435 1884. Our qualified tax accountants are always available to support you for Saudi Arabian and UAE taxation system.