Small Business Relief in the UAE Corporate Tax Regime8 min read
- 23.10.2023
- Posted by: Omar Sami
- Categories: Accounting, Dubai, Tax
Small Business Relief is a valuable provision offered by the United Arab Emirates (UAE) to assist small businesses in the implementation of the Corporate Tax regime. This relief is designed to ease the compliance obligations faced by small businesses in the initial stages of the Corporate Tax system, specifically by reducing the burden of calculating and paying Corporate Tax.
Who Is Eligible for Small Business Relief?
Any eligible taxable person (Corporate Income Tax), whether a natural person or a juridical person, residing in the UAE, can opt for Small Business Relief if their revenue is equal to or below AED 3,000,000 in a relevant tax period and all previous tax periods that end on or before December 31, 2026. If their revenue surpasses this threshold in any tax period, they lose the eligibility for Small Business Relief, even if their revenue subsequently falls below the AED 3,000,000 limit. Those who choose this relief will enjoy the following benefits:
Administrative Relief:
-No requirement to calculate their taxable income.
-Simplified tax return filing and record-keeping requirements.
-Ability to prepare financial statements using the cash basis of accounting.
Tax Relief:
-No obligation to pay Corporate Tax on income earned in the tax period.
-Eligible taxable persons can elect for Small Business Relief within their tax return. Once the election is made, they can complete a simplified tax return and benefit from these relief measures.
The revenue for determining eligibility follows UAE’s accepted accounting standards. Revenue is defined as the gross amount of income derived during a tax period, which includes income from sales, asset sales, and other gross income sources. Profit, on the other hand, does not affect eligibility for Small Business Relief.
Who Is Not Eligible for Small Business Relief?
There are two key exceptions to the Small Business Relief criterion:
Members of Multinational Enterprise Groups (MNEs):
Businesses that are part of an MNE cannot avail of Small Business Relief. MNEs are groups of companies with total consolidated group revenue exceeding AED 3.15 billion and are required to prepare a Country-by-Country Report.
Qualifying Free Zone Persons:
Qualifying Free Zone Persons already enjoy a 0% Corporate Tax rate on their Qualifying Income and, therefore, are not eligible for small business relief.
Election for Small Business Relief
Small Business Relief is optional and must be elected within the tax return for each relevant tax period. Once a tax return is submitted without the election for Small Business Relief, the benefit cannot be claimed later. To elect for the relief, eligible taxable persons must register for Corporate Tax, obtain a Tax Registration Number (TRN), and maintain records to demonstrate their eligibility.
What Does Having No Taxable Income Mean?
For businesses not electing Small Business Relief, taxable income is calculated by adjusting accounting income for tax treatment, excluding exempt income, and adding back non-deductible expenses. Small Business Relief treats eligible taxable persons as having no taxable income, so they are exempt from these calculations and can complete a simplified tax return.
Impact on Tax Losses, General Interest Deduction Rule and Other Reliefs
Eligible businesses electing for Small Business Relief cannot apply tax loss rules or the general interest deduction limitation rule for the corresponding tax period. For the General Interest Deduction Rule this means they won’t be able to accumulate or utilize Net Interest Expenditure in that Tax Period and cannot carry it forward to subsequent Tax Periods.
Apart from the impact on the tax loss rules and the general rule limiting the deduction of interest, the election of the small business rule also affects other relief measures such as the ability to transfer assets at net book value within a qualifying group.
Impact on Exempt Income
Exempt Income comprises specific income types that are not subject to taxation. However, the significance of this distinction applies primarily to businesses that are required to calculate their Taxable Income. Small Business Relief simplifies taxation to the extent that businesses choosing this option need not concern themselves with Exempt Income.
How TME Legal Consultants Can Support Your Business
Small Business Relief in the UAE’s Corporate Tax regime offers significant benefits to eligible businesses while reducing their compliance requirements. It’s a valuable option for small businesses looking to streamline their tax obligations and focus on growth and development. Make sure to carefully assess your eligibility and the impact of this relief on your specific circumstances to make an informed decision.
TME Legal Consultants is a team of 45 professionals in the field of legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well oriented in the new and fast evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.
