Small Business Relief – Under UAE CT Laws
Small Business Relief is provided to small Businesses resident for Corporate Tax purposes in the UAE to ease their implementation of the Corporate Tax regime. Small Business Relief reduces the compliance obligations faced by small Businesses in the early stages of the Corporate Tax regime, primarily by alleviating the burden of having to calculate and pay Corporate Tax.
Small Business Relief – Who is eligible under UAE CT Laws
A Taxable Person (being a Resident Taxable Person – either a Natural Person or a Juridical Person) with Revenue below or equal to AED 3,000,000
- in a relevant Tax Period and all previous Tax Periods that end on or before 31 December 2026
- can elect to be treated as having no Taxable Income in that period, and will not be obliged to calculate its Taxable Income or complete a full Tax Return.
Small Business Relief – Main benefit of relief under UAE CT Laws
Eligible Taxable Persons that have elected for the Small Business Relief will benefit from both:
- administrative relief: they will not be required to calculate their Taxable Income and will benefit from simplified tax return filing and record keeping requirements, including the ability to prepare their Financial Statements using the cash basis of accounting; and
- 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. Once the election has been made, they will be able to complete a simplified Tax Return and benefit from the relief.
Briefly, Business is:
- required to register for Corporate Tax
- required to file a simplified Tax Return
- not required to file a full Tax Return
- not required to calculate Taxable Income
- not liable to pay Corporate Tax to pay.
Other important aspects of Small Business Relief: Business will be, subject to meeting necessary conditions:
- cannot accrue and utilise Tax Losses for the relevant Tax Period
- Cannot accrue and utilise Excess Interest Expenditure for the relevant Tax Period
- Can carry forward Tax Losses and Excess Interest Expenditure from previous Tax Periods
- Cannot apply reliefs for transfers within a Qualifying Group or for Business restructuring transactions
- Are not required to comply with transfer pricing documentation requirements
- Must comply with the Arm’s Length Principle
Small Business Relief – 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 Tax Periods. However, there are two key 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. 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 and are required to prepare a Country-by-Country Report under the UAE’s Country-by-Country Reporting legislation.
Qualifying Free Zone Persons
Small Business Relief will not be available to Qualifying Free Zone Persons. 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:
- Maintains adequate substance in the UAE;
- Derives Qualifying Income as specified in the relevant Cabinet Decision;
- Has not elected to be subject to Corporate Tax;
- Complies with the requirements under the Arm’s Length Principle and transfer pricing documentation; and
- 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% (five percent) 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; and
- Prepares audited financial statements.
Qualifying Free Zone Persons will not be eligible for Small Business Relief, even if they are Resident Persons and have Revenue that is equal to or less than AED 3,000,000 in the relevant Tax Period and all previous Tax Periods.
Free Zone Persons that are not Qualifying Free Zone Persons are eligible for Small Business Relief and can elect for Small Business Relief if they are a Resident Person and their Revenue does not exceed AED 3,000,000 in the relevant Tax Period and all previous Tax Periods.
Small Business Relief will also not be available where a Person artificially separates their Business into more than one entity in order to ensure that the Revenue of each entity is below the threshold for Small Business Relief. Where the FTA establishes that artificial separation has taken place, the Person will have to repay any unpaid Corporate Tax and any penalties that may be charged.
Small Business Relief – How to elect for Small Business Relief
Eligible Taxable Persons that meet the conditions for Small Business Relief and wishing to benefit from Small Business Relief must first register for Corporate Tax. Then they must make an election in their Tax Return in order to benefit from the relief. This election must be made for each Tax Period that a Tax Return is filed in order for the relief to apply for that Tax Period.
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