The UAE Federal Tax Authority (FTA) published a corporate tax guide on Small Business Relief (CTGSBR1). This guide is designed to provide guidance on Small Business Relief for Corporate Tax in the UAE. This guide explains the overviews these following major topics:
- The introduction of Small Business Relief
- Eligibility criteria
- How it works
- How long it is available
- Related compliance requirements
Small business relief is for the small businesses resident for corporate tax purposes in the UAE to improve the implementation of the Corporate Tax regime. Small business relief reduces the compliance obligations for small businesses in the early stages of the Corporate Tax regime. This alleviates the burden of paying and calculating Corporate Tax.
The guide states, “Any eligible Taxable Person (being a Resident Taxable Person, either a Juridical Persin or a Natural Person) with Revenue below or equal to AED 3,000,000 in the relevant Tax Period that ends or before 31 December 2026 can elect to be treated as having no Taxable Income in that period. They will not be obliged to calculate their Taxable Income or complete full Tax Returns.”
Benefits for small business relief in UAE
Federal Tax Authority has made it more clear for Taxable persons about the corporate tax regime. The eligible Taxable Persons who have elected for the Small Business Relief will benefit from these reliefs:
Administrative relief: They will not be required to calculate their Taxable Income. Also, they will benefit from simplified record-keeping requirements and tax return filing, including the ability to prepare their Financial Statements using cash-based accounting.
Tax relief: They are not required to pay any corporate tax on income earned in the Tax Period.
Eligible Taxable Persons can elect for Small Business Relief in their Tax Return. They can complete a simplified Tax Return and benefit from the relief once the election has been made.
Overview of the Small Business Relief
| If an election for Small Business Relief is made | If no election for Small Business Relief is made | |
|---|---|---|
| Required to register for Corporate Tax | ✓ | ✓ |
| Required to file a full Tax Return | ✗ | ✓ |
| Can file a simplified Tax Return | ✓ | ✗ |
| Required to calculate Taxable Income | ✗ | ✓ |
| No Corporate Tax to pay | ✓ | Depends on the level of Taxable Income |
| Subject to meeting mandatory conditions: | ||
| Can utilize and accrue Tax Losses for the relevant Tax Period | ✗ | ✓ |
| Can utilize and accrue Excess Interest Expenditure for the relevant Tax Period | ✗ | ✓ |
| Can carry forward Tax losses and excess Interest Expenditure from previous Tax Periods | ✓ | ✓ |
| Can apply reliefs for transfers within Qualifying Group or for Business restructuring transactions | ✗ | ✓ |
| Must comply with transfer pricing documentation requirements | ✗ | ✓ |
| Must comply with the Arm’s Length Principle | ✓ | ✓ |
Revenue threshold
For Small Business Relief, an eligible Taxable Person’s Revenue must be equal to or below AED 3,000,000 for the relevant Tax Period and all previous Tax Periods. If the Taxable Person’s Revenue exceeds AED 3,000,000 in a Tax Period. Then, the Taxable Person will no longer be able to elect for small Business Relief.
According to the FTA guide, the revenue for this purpose will be determined in accordance with the applicable accounting standards accepted in the UAE. Revenue is defined in the Corporate Tax Law as “the gross amount of income derived during a Tax Period.”
This includes the income from all of the sales a business makes, as well as any other gross income it receives, such as sales of an asset income. Revenue is, therefore, different from profit, which is the difference between its costs and business Revenue. Business profit amount does not have an impact on its eligibility for Small Business Relief. Revenue should be determined based on the arm’s length principle.
The income from all the business activities is undertaken by a particular juridical person when determining the revenue. Moreover, the certain defined Business Activities of a natural person.
Who is not eligible for Small Business Relief?
Small business relief will be available to UAE Resident Persons whose Revenue does not exceed AED 3,000,000 for the relevant Tax Period and all previous periods. However, there are two main exceptions to this criterion:
- Where the business is a member of a Multinational Enterprise Group (MNE)
- Where the business is a Qualifying Free Zone Person
Members of an MNE
Small Business Relief will not be available to a business that is a constituent company of an MNE. For those who don’t know, MNEs are groups of companies that operate in more than one country and that have a total consolidated group revenue of more than AED 3.15 billion. Also, these are required to prepare a Country-by-Country Report under the UAE’s Country-by-Country Reporting legislation.
A constituent company means:
Any separate business unit of an MNE that is included in the consolidated financial statements of the MNE for the purpose of preparing the financial reports.
Any business entity that is excluded from the MNE’s consolidated financial statements solely on materiality grounds or size.
Even if a UAE constituent company of an MNE has Revenue equal to or below AED 3,000,000 for the relevant Tax Period and all previous Tax Periods, the UAE constituent company will not be able to elect for Small Business Relief.
Qualifying Free Zone Persons
Qualifying Free Zone Persons will not benefit from the Small Business Relief in UAE. Qualifying Free Zone Persons already benefit from a 0% Corporate Tax rate on their Qualifying Income. A Qualifying Free Zone Person is a Free Zone Person that:
Derives qualifying income as specified in the relevant Cabinet Decision
- Maintains adequate substance in the UAE.
- Has not elected to be subject to corporate tax.
- Complies with the requirements under the Arms’s Length Principle and transfer pricing documentation.
- Meets the following other conditions prescribed by the Minister. The non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5,000,000 (five million dirhams), whichever is lower.
- Moreover, a qualifying free zone person prepares audited financial statements.
Conclusion
Small business relief is for small business residents for corporate tax purposes in UAE. The purpose of this relief is to ease their implementation of the Corporate Tax regime. Small Business Relief reduces the compliance obligations faced by small businesses. In this blog, we discuss the main key points about small business relief. However, there are many aspects of the new corporate tax regime. It is important for you to understand your business eligibility for the corporate tax regime. It’s advisable to consult the tax experts in UAE to know about all the macro to micro details of the corporate tax regime.
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FAQs
What is the small business relief scheme in UAE?
The United Arab Emirates aims to strengthen its small business sector. UAE has launched the Small Business Relief (SBR) scheme. This move seeks to ease the corporate tax strain for companies having a gross business income of up to Dh3 million.
What is small business relief under UAE corporate tax?
According to the detailed Article 21 of the Federal Decree-Law No. 47 of 2022. Small Business Relief allows eligible businesses to consider their income as zero for a specific tax period. This means that the qualifying small businesses will not have to pay any UAE corporate taxes during the eligible period. Moreover, they will also enjoy other benefits of this relief.
What is the threshold for UAE corporate tax?
All annual taxable profits that fall under AED 375,000 will be subject to a 0% rate. All annual taxable profits above AED 375,000 will be subject to 9% rate.