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The UAE Corporate Tax law provides relief to small businesses under the Small Business Relief provision. However, businesses must carefully consider multiple factors before opting for this relief. Below are the key do’s and don’ts that businesses should follow when applying for Small Business Relief.
Do’s (Best Practices for Eligibility and Compliance)
Ensure Eligibility - Be a Resident Person (either a natural person or a juridical person) under UAE Corporate Tax law.Have Revenue below or equal to AED 3,000,000 in the relevant Tax Period and all previous Tax Periods.File a valid election for Small Business Relief in the tax return for each Tax Period.
Register for Corporate Tax - Even if applying for relief, businesses must still register for Corporate Tax with the Federal Tax Authority (FTA).
Maintain Proper Financial Records - Businesses must maintain records such as:
(1) Bank statements,
(2) Sales ledgers,
(3) Invoices,
(4) Order records and delivery notes,
(5) VAT records,
(6) Other relevant business correspondence.
These records should be retained for at least 7 years following the end of the Tax Period.
Understand Transfer Pricing (TP) Provisions - Although Transfer Pricing Documentation rules do not apply to businesses that elect for Small Business Relief, transactions with related parties must still comply with the Arm’s Length Principle. This is important, to assess, if and when the adjustment of TP / ALP (Arm's Length Principle), pushes the same from less than 3 million to more than 3 million.
Understand Tax Loss Rules and Other Relief Implications - Businesses cannot carry forward or utilize tax losses if they opt for Small Business Relief. Relief for transfers within a Qualifying Group or business restructuring relief does not apply.
Assess Impact on Participation Exemption - Dividends received from UAE companies are exempt from Corporate Tax, but the Participation Exemption conditions still need to be reviewed when electing for Small Business Relief.
Don’ts (Mistakes to Avoid When Applying for Small Business Relief)
Do Not Artificially Separate Businesses to Claim Relief - The FTA actively monitors and counteracts artificial separation to manipulate eligibility for Small Business Relief. Artificial separation includes:
(a) Functional separation, i.e. Dividing different functions within the same business (e.g., splitting food and beverage sales in a restaurant).
(b) Geographical separation: Running the same business in different locations under different entities (e.g., a chain of cafes operating as separate companies).
(c) Temporal separation: Using different entities successively to claim Small Business Relief (e.g., creating new entities once the revenue threshold is reached). If detected, businesses will have to repay the unpaid Corporate Tax along with penalties.
Do Not Forget to Check Exclusions from Small Business Relief - Businesses not eligible for Small Business Relief include:
(i) Multinational Enterprise (MNE) group members with consolidated revenue of at least AED 3.15 billion.
(ii) Qualifying Free Zone Persons that already benefit from a 0% tax rate.
Do Not Assume You Are Fully Exempt from Compliance - Businesses still need to:Register for Corporate Tax. File Tax Returns (though simplified). Keep financial records to prove revenue eligibility. Ensure transactions with related parties follow the Arm’s Length Principle.
Do Not Ignore Revenue Threshold Rules - The revenue limit of AED 3,000,000 applies cumulatively across all Tax Periods. If revenue exceeds AED 3,000,000 in any Tax Period, the business loses Small Business Relief permanently, even if revenue falls below the threshold in later periods (till 2026).
Do Not Misinterpret Deductible Expenditure Rules - Businesses electing for Small Business Relief are not allowed to claim deductions for expenses. All calculations are based on revenue alone.
Before applying for Small Business Relief, businesses must carefully validate their eligibility, ensure proper record-keeping, and avoid artificial separation. While the relief simplifies tax compliance, non-compliance or misuse can lead to penalties and tax liability.Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
