Guide to Business Documents Your Small Business Needs
You might be aware that the United Arab Emirates (UAE) introduced the Corporate Tax for businesses on 1st June 2023. Under the new tax policy, the taxpayer must pay a certain corporate tax rate on the income they earn.
Are you a small business owner and tense after learning about Corporate Tax implementation in the UAE? In that case, you may feel happy to know that the UAE government has also introduced Small Business Relief programs to give you relief. Today, we will discuss each essential aspect of small business relief on the Corporate Tax in this nation.
Small Business Relief within Corporate Tax - Overview
Small Business Relief is a provision under Article 21 of the Federal Decree-Law No. 47 of 2022. You might be shocked to learn that this provision ensures that eligible small businesses are exempt from paying Corporate Tax during the tax period. It allows eligible resident taxable persons, both natural and juridical, to choose an exemption from the UAE Corporate Tax.
If your business is a UAE resident with an annual revenue of less than AED 3 million* and meets other criteria, you or your business are eligible for this relief. It does not mean that you will not be filing your tax return for your business, rather it eliminates the effort of calculating taxable income. As a result, you can use the tax basis of accounting to manage your financial statements. Besides these, there are several aspects included in the Small Business Relief grants. So, let us take a quick overview of the significance of this program:
Administrative Relief: If your business qualifies for small business tax relief, you will acquire exemptions from rigorous administrative procedures, like filing of a detailed tax return. It means you can enjoy the freedom of using a cash-based accounting system to make your financial management process simpler and easier.
Tax relief: You can also enjoy significant tax relief if your business qualifies for small business relief under the Corporate Tax. Indeed, you have guessed it right! You do not need to pay any Corporate Tax on your income earned for that taxable period. Apart from this, your compliance requirement will be much more relaxed than other organizations. For example, your transfer pricing rules will be a little simple and straightforward.
Eligibility criteria for Small Business Relief under the Corporate Tax in the UAE
As mentioned above, you must meet the eligibility criteria to benefit from Small Business Relief in the UAE. We have outlined the eligibility criteria that you should fulfill to claim this relief below:
Revenue limit: The annual revenue of your company should be less than AED 3 million* for the tax period. You must also ensure it is below this limit for all previous periods before or ending on 31st December 2026. For example, suppose your business earns more than AED 3 million* for one year and below AED 3 million* for the next year. In that case, you will not be eligible for Small Business Relief under the Corporate Tax in the UAE.
Resident Status: If you are a resident person in the UAE (natural and juridical person in the UAE), you can apply for small business relief. Similarly, you can also apply for this relief if you are a Free zone or juridical person incorporated outside the UAE but controlled and managed by this country.
Election for relief: You may claim Small Business Relief in the UAE for the 31st December 2026 tax period consequently if your company meets the guidelines we discussed above. However, you must file a notification with the taxation authority during a particular tax period. Suppose the return is filed without choosing the relief. In that case, you cannot claim it later.
Tax Registration Number (TRN): You also need a Tax Registration Number (TRN) to become eligible for the Small Business Relief in the UAE. Moreover, you should also maintain records, including the revenue documents of your company to prove your eligibility for this program.
Suppose you are eligible but do not apply for the small business relief. In that case, you must carry forward incurred tax loss and disallowed net interest expenditure from the tax period that would have been eligible for this relief.
Which person does not qualify for Small Business Relief in the UAE?
Indeed, Small Business Relief programs introduced to give some relief to small business owners like you from Corporate Tax in the UAE. However, there are a few circumstances where you cannot become eligible for this program. Let us understand these cases in detail to know who is not eligible for this program:
1. Member of Multinational Enterprise Group (MNE)
Suppose your organization is a member of an MNE group that operates across various countries and has a consolidated annual global revenue of more than AED 3.15 billion. In that case, you will not become eligible for the Small Business Relief in the UAE. Remember, all MNEs must prepare a country-by-country report as per the applicable legislation.
You should remember that this rule applies to any constituent company under MNE that contributes to the consolidated financials of the group. The size of your organization does not matter unless your business is left out of the consolidated financial reports because it is not considered significant. Even if your specific business unit earns less than AED 3 million, you will not be eligible to apply for SME relief in the UAE.
2. Qualifying Free Zone Person
If your business is situated in the free zone and has specific criteria, you cannot claim the small business relief in the UAE. However, companies, like yours, in this area are already benefiting from 0% Corporate Tax in this nation in case the conditions to become a qualifying freezone person are satisfied.
How can Flyingcolour Tax Consultants help you?
You can enjoy freedom from paying corporate tax and other benefits with Small business Relief Programs in the UAE. However, you need to meet the eligible criteria to claim this relief for your business. Flyingcolour Tax Consultant can help you understand whether you are eligible for this relief. Moreover, we can help you to apply for this relief.
To learn more about Small Business Relief and Requirements and Documentation Take care by SMEs, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.