Special Initial Allowance for Small to Medium Enterprise (SMEs)

A Small-to-Medium Enterprise (SME) is any business or enterprise that scored nine points or less in terms of its employment levels, or turnover levels and or total net asset values.

Do I qualify as an SME?

As indicated, a Small-to-Medium Enterprise is determined by reference to its employment levels, annual turnover and or asset values in terms of section 2B of the Finance Act [Chapter 23:4]. Points ranging from one to four are substituted into the following formula:

A+B+C

Where:-

A represents the average maximum total number of full time employees during any calendar year of a business or enterprise.

B represents maximum total annual turnover of a business or enterprise and

C represents maximum gross value of assets (excluding immovable property) of a business or enterprise.

The factors A, B and C are assigned a predetermined number of points, such that if the total sum of the formula is nine points or less the business or enterprise is an SME.

How are the points allocated?

Points are determined as per the table below:

Base

Range

Points

Factor

Employment levels

Up to  5 employees

1

A

6 to 40 employees

2

41 to 75 employees

3

76 and above

4

Annual Turnover

Up to $50,000

1

B

$50,001 to $500,000

2

$500,001 to $1,000,000

3

$1,000,001 and above

4

Gross value of assets

Up to $50,000

1

C

$50,001 to $1,000,000

2

$1,000,001 to $2,000,000

3

$2,000,001 and above

4

Interpretation of scores

A score is established by adding the points in each factor. Based on the results of the formula A+B+C based on the table above, any score of:

1)      3 or 4 points means “micro-enterprise”

2)      5, 6 or 7 points means “small-sized” business or enterprise

3)      8 or 9 points means “medium-sized” business or enterprise

A score of less than three points disqualifies a business or enterprise as an SME and therefore removes eligibility for claim to the special initial allowance.

The Minister of Finance may by notice in a statutory instrument amend on a business-sector specific basis, either the points assigned to any factor or the value representing full- time employees, or annual turnover and or gross value of the assets.

Did you know that SMEs are granted 50% Special Initial Allowance (SIA) in the first year and 25% in each of the next two years of assessment?

This allowance is an incentive to SMEs to boost their growth rate and to attract micro enterprises to formalise their transactions. The SMEs definition is in terms of section 2B of the Finance Act [Chapter 23:04].

What is a Special Initial Allowance and who qualifies for the claim?

Special Initial Allowances are granted to any SME in terms of section 15(2) (c) as read with the fourth schedule paragraph 9 (g) of the Income Tax Act [Chapter 23:06].

An SIA is a capital allowance which ranks as a deduction. It has the effect of reducing the taxable amount and therefore the tax due from a business. This incentive enables the business to retain more of its earnings which can then be re-invested to grow the business.

Any SME can claim 100% (50% in the first year and 25% in the next 2 years) SIA on expenditure incurred on

  • The construction of new industrial buildings, farm improvements, railway lines, staff housing and tobacco barns.
  • Articles, implements, machinery and utensils purchased for purposes of trade.
 
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