Small Business Relief
The Federal Tax Authority has announced Small Business Relief for supporting small & medium enterprises as well as startups by way of reducing their tax compliances and administrative burdens. This relief has been highly welcomed by the business community in the UAE.
FTA has published a detailed guide on Small Business Relief (Corporate Tax Guide | CTGSBR1 Small Business Relief). In this article, we will enlighten you on the benefits of Small Business Relief, when to elect this relief and when not to elect it.
Advantages and Disadvantages of Availing Small Business Relief in UAE Corporate Tax
Advantages
- Tax Exemption
Those who are eligible for this Small Business Relief, file the Corporate Tax Return and can declare that they do not have taxable income in the relevant tax period. This means, that if the revenue is below AED 3 Million and at the time of choosing Small Business Relief, it is considered that there is no taxable income and no Corporate Tax Liability.
- Simplified Compliance
Small businesses can benefit from simplified tax compliance requirements, as they are not required to carry forward tax losses or net interest expenditures incurred during the periods they elect for small business relief. This will give a big relief to small businesses from administrative burden as they are required to declare their revenue at submit the tax return.
- Cash Flow Management
By reducing or eliminating the Corporate Tax burden, small businesses can better manage their cash flow, allowing them to reinvest in their operations and growth.
- Transfer Pricing Documents
The taxable person who opts for small business relief is not required to prepare transfer pricing documents for UAE Corporate Tax purposes. However, the transaction between related parties is required to be at Arm’s Length.
Disadvantages
1. Ineligibility for Other Reliefs
Businesses that opt for small business relief cannot carry forward tax losses or net interest expenditures to subsequent tax periods. This could be a disadvantage if the business incurs significant losses or interest expenses.
2. Revenue Threshold Limitation
The relief is only available to businesses with revenue not exceeding AED 3 million per tax period. If a business's revenue exceeds this threshold in any relevant or previous tax period, it becomes ineligible for the relief.
3. Artificial Separation of Business
The Federal Tax Authority (FTA) may consider the artificial separation of business activities to fall under arrangements to obtain a Corporate Tax advantage, which could lead to penalties and disqualification from the relief.
4. Exclusion of Certain Entities
Certain entities, such as constituent companies of multinational enterprise groups and qualifying free zone persons, are not eligible for small business relief.
Key points regarding Small Business Relief in the UAE
- Corporate Tax registration and return filing – The taxable person who is eligible for small business relief is still required to comply with tax registration and return filing compliance. The election of small business relief is available at the time of filing a tax return; it is not automatic relief.
- Small Business Relief can be availed by resident persons only. This means that both natural persons and juridical persons who are residents for UAE Corporate Tax purposes can elect Small Business Relief. At the same time, a non-resident who has a Permanent Establishment or Nexus in the UAE is not eligible for Small Business Relief.
- When to elect Small Business Relief? If the taxable person has made a taxable profit of AED 375,000 or more, it is ideal to elect the Small Business Relief. On the other hand, if the revenue is below AED 3 Million and the taxable person has recorded a tax loss, it is not recommended that small business relief be elected as the recorded tax loss cannot be carried forward.
- Small Business Relief is applicable to those taxable persons whose annual revenue is less than 3 Million Dirhams. Such taxable persons are, by default, following a cash basis of accounting and need to elect an accrual basis if they wish to change.
- Small Business Relief is available for the tax periods ending before 31 December 2026. During these tax periods, current tax periods or previous tax periods, if the taxable person exceeds the revenue threshold of AED 3 Million is not eligible for Small Business Relief in the current tax year or future tax years.
- If the tax period of the company is longer (12 months to 18 months) or shorter (6 months to 12 months), the threshold of AED 3 Million is calculated for such a longer or shorter period.
FAQ- Small Business Relief in UAE Corporate Tax
1. What is the Small Business Relief in the UAE Corporate Tax?
The Small Business Relief is a special provision that allows eligible businesses to be treated as having zero taxable income for a specific tax period. This means they don’t have to pay corporate tax as long as their total revenue is not more than AED 3 million for that tax period.
2. Who is eligible for the Small Business Relief?
To qualify, a business must be a resident person in the UAE, this includes juridical and natural persons conducting business, and their total annual revenue must not be more than AED 3 million in the relevant tax period and all previous tax periods. Qualifying Free Zone Persons and members of multinational enterprise groups are not eligible.
3. Is the Small Business Relief automatic?
No, it’s not automatic. Eligible businesses must actively opt for the relief when they file their corporate tax return with the Federal Tax Authority (FTA). This election must be made for each tax period the business wants to claim the relief.
4. Do I still need to register and file a return if I’m claiming the relief?
Yes. All businesses subject to corporate tax, including those opting for the Small Business Relief, must register with the FTA and obtain a Tax Registration Number (TRN). You must also file an annual corporate tax return to opt for the relief, even if you will have zero tax liability.
5. What happens if my revenue exceeds the AED 3 million threshold?
If your revenue exceeds AED 3 million in any tax period after the relief’s introduction, you will not be eligible for the Small Business Relief for that period and all subsequent periods. You will then be subject to the standard corporate tax rates.
To learn more about Small Business Relief in UAE Corporate Tax, 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.