The UAE government has introduced UAE Corporate Tax (CT) effective from 1 June 2023. The Corporate Tax is a tax on the net profits of businesses, but there are several reliefs available to small businesses. Small Business Relief is one of the main reliefs available to small businesses. This relief enables a small business to be exempted from Corporate Tax liabilities, thereby providing significant financial relief.
Small Business Relief in the UAE has been introduced as a game-changing initiative for small companies in the Middle Eastern nation. It allows eligible Resident Taxable Persons, whether individuals or corporate entities, to opt for an exception from Corporate Tax framework if their revenue meets specific criteria. Businesses who elect for small business relief benefit from two significant advantages:
- Eligible entities can prepare their Financial Statements using the cash basis of accounting, making more straightforward financial management practices.
- Businesses opting for Small Business Relief are exempted from paying taxes on income earned during the Tax Period.
The relief is available for tax years starting after June 1, 2023. A revenue threshold of AED 3 million will apply to tax periods ending on or before December 31, 2026. Businesses can elect to claim Small Business Relief for specific tax period by filing a notification to the FTA. The small business relief can be claimed for multiple consecutive tax periods, provided the entity continues to meet the eligibility criteria.
Below are the conditions that a Taxable Persons must meet to qualify for Small Business Relief:
- Revenue must be equal or below AED 3,000,000 for the relevant Tax Period and all previous Tax Periods ending on or before December 31, 2026.
- The election for relief must be made within the Tax Return for the respective Tax Period.
- Juridical person incorporated in the state, including free zone entities.
- Juridical entities incorporated outside the state but managed and controlled from the UAE.
- Any natural person who carries out business or related activities in the state.
- Any person as identified by the cabinet under specific decisions.
- Small Business Relief in the UAE is available to resident persons, including:
Who is not eligible for Small Business Relief?
- Corporate Tax Members of Multinational Enterprise Groups (MNEs): Companies that part of a Multinational Enterprise Group with total consolidated group income exceeding AED 3.15 billion are ineligible for Small Business Relief.
- Corporate Tax Qualifying Free Zone Persons: Entities qualifying for a 0% Corporate Tax rate on Qualifying Income within free zones are not eligible for Small Business Relief and QFZP must meet specific criteria to maintain this status.
Impact on Other Corporate Tax Regulations
Businesses opting for Small Business Relief in the UAE are excluded from applying certain other corporate tax reliefs and regulations. For example, they cannot utilize Tax Loss Rules or the General Interest Deduction Limitation Rule for that Tax Period. This is because these reliefs are related to the calculation of Taxable Income, which Small Business Relief effectively nullifies for eligible entities.
A business must meet the conditions as follows to be eligible for Small Business Relief in the UAE:
- It must be a resident person in the UAE.
- Their revenue for the relevant tax period and previous tax periods must not exceed AED 3 million.
- It must not operate as a financial institution or holding company.
Small Business Relief is a valuable tax benefit for SME businesses operating in the UAE. It grants an opportunity to grow small businesses and potentially reduce their tax burden. However, businesses must carefully assess the impact of claiming the relief is beneficial for them in each tax period based on factors such as taxable profits, interest costs, and available tax reliefs.
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