Understanding the Small Business Relief in the UAE

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Small Business Relief is a program in the UAE aimed at easing the Corporate Tax (CIT) compliance burden for eligible small businesses. The FTA has issued detailed guidelines on this Relief, eligibility, and compliances. Let’s delve further. 

1. What is the Small Business Relief? 

Eligible businesses with Revenue equal to or below AED 3,000,000 in a relevant Tax Period and previous periods are entitled to certain benefits under the Small Business Relief, viz. no corporate tax on Taxable Income earned in the relevant Tax Period and simplified tax return filing. 

2. Who is eligible for the Relief? 

The Relief is available to UAE resident taxpayers, whether natural persons or juridical taxpayers. Thus, non-residents in the UAE are not entitled to this Relief; however, foreign entities having their fixed place of business or a place of effective management in the UAE may be eligible for this Relief. 

Further, certain taxpayers are specifically excluded from this Relief, even if their revenue equals to or is below AED 3,000,000: 

• where the business is a member of a Multinational Enterprise Group (MNE), ; and 
•  where the business is a Qualifying Free Zone Person (QFZP). 

3. How are Revenue and Taxable Income calculated while computing the Relief? 

Revenue earned in the UAE or from foreign sources is considered for calculating the threshold of AED 3,000,000. In certain cases, it also includes proceeds from the sale of business assets. However, VAT is not included in calculating Revenue. 

Taxable Income is generally calculated as the difference between Revenue and Costs. 

Exempt Income is not considered for calculating Revenue or Taxable Income.  It includes dividends and gains from a participating interest in a juridical person. 

3. What is the period during which the Relief is available? 

Small Business Relief is available for Tax Periods that begin on or after 1 June 2023 (i.e., from the time of commencement of corporate tax in the UAE) and will be available for Tax Periods that end before or on 31 December 2026. Currently, the Relief is available for a limited period, though it may be extended further. 

4. Is it mandatory for a taxpayer entitled to Small Business Relief to register with the FTA? 

Yes. An eligible taxpayer must register with the FTA to claim this Relief and procure a Tax Registration Number (TRN). 

5. Is the Relief available automatically? 

No. The eligible taxpayer must elect for the Relief while filing its annual tax return. The election must be made every year. 

In case the election is not made, income will be taxable at normal CIT rates, i.e., 0% on Taxable Income up to AED 375,000 and 9% on Taxable Income above AED 375,000. 

6. What are the anti-avoidance measures built in the Small Business Relief mechanism? 

Small Business Relief is not available when a taxpayer artificially separates its business into more than one entity to ensure that the Revenue of each entity is below AED 3,000,000. 

Further, Tax Losses or Net Interest Expenditure incurred during the Tax Period, in which the election is made, cannot be utilized or carried forward to other Tax Periods. 

7. What are the complaint requirements for a taxpayer claiming the Relief? 

Apart from registration and election discussed above, the taxpayer electing for the Relief must also maintain accounts and transfer pricing documentation adequate to substantiate its claim. Further, they must file an annual tax return in a simplified form with limited information requirements.   

Conclusion 

The Small Business Relief is an important measure in the UAE CIT landscape. Taxpayers must assess the benefits they can derive from this Relief viz-a-viz other benefits available in the CIT law. 

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.