Small Business Relief in the UAE is designed to support startups and micro businesses by alleviating their Corporate Tax burden and simplifying compliance. This initiative allows eligible Resident Taxable Persons, both natural and juridical, to opt for an exemption from UAE Corporate Tax if their revenue meets specified criteria.
Key Benefits for the small businesses are –
Not obligated to calculate Taxable Income
Simplified Tax Return and record keeping requirements
Not required to pay corporate tax during the relief period
Legislative Framework
The Ministry of Finance issued Ministerial Decision No. 73 of 2023 on April 6, 2023, concerning Small Business Relief under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, commonly referred to as the UAE Corporate Tax Law.
Who can elect for Small Business Relief?
Resident Persons, both natural and juridical persons, including Free Zone Persons can elect for the Small Business Relief.
A. Benefits of Registering for Small Business Relief
1. Administrative Relief
· Simplified Tax Return Filing: Businesses will not need to calculate their taxable income, resulting in easier tax return filing and record-keeping requirements.
· Cash Basis Accounting: Financial Statements can be prepared using the cash basis of accounting.
· Exemption from Transfer Pricing Documentation: Businesses opting for Small Business Relief are not required to comply with Transfer Pricing documentation rules for the relevant Tax Period. However, they will still need to comply with the arm’s length principle.
2. Tax Relief
· Exemption from Corporate Tax: Businesses will be treated as having no taxable income for the relevant Tax Period, thereby exempting them from paying any Corporate Tax.
Carry Forward of Tax Losses and Disallowed Interest Expenditure
Businesses opting for Small Business Relief cannot carry forward any tax losses or disallowed net interest expenditure from such periods for use in future periods where the relief is not elected.
B. Ineligibility for Small Business Relief
Multinational Enterprise Groups (MNEs): Businesses that are part of an MNE Group with total consolidated group revenue exceeding AED 3.15 billion.
Qualifying Free Zone Persons: Entities that already benefit from a 0% Corporate Tax Rate cannot elect for Small Business Relief.
Artificial Separation: Businesses that artificially separate their operations to fall below the revenue threshold will be disqualified, and the Federal Tax Authority (FTA) can issue assessments to counteract such advantages, requiring repayment of any unpaid Corporate Tax and penalties.
C. Other Conditions:
i. Revenue Threshold
Eligibility: Resident taxable persons can claim Small Business Relief if their revenue is below AED 3 million for the relevant Tax Period and previous Tax Periods. The calculation of revenue will include sale of Goods or Services by a Business, Sale of Business Assets, Exempt Income, etc.
Loss of Eligibility: If revenue exceeds AED 3 million in any Tax Period, Small Business Relief is no longer available for that period or subsequent periods.
ii. Tax Period Conditions
To claim Small Business Relief, the revenue of the taxable resident person must not exceed AED 3 million for all Tax Periods from June 1, 2023, to December 31, 2026. If the threshold is crossed in any Tax Period, relief is not available for that period or any subsequent periods.
Election for Small Business Relief has to be made for each Tax Period.
Conclusion
Small Business Relief provides significant administrative and financial benefits for eligible small businesses in the UAE. By understanding and adhering to the eligibility criteria and conditions, small businesses can optimize their tax obligations and focus on growth and development.
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