Small Business Tax Relief Under UAE CT
The UAE government has introduced a new tax regime, the UAE Corporate Tax (CT), which was effective from 1 June 2023. The CT is a tax on the net profits of businesses, but there are a number of reliefs available to small businesses. One of the key reliefs available to small businesses is the Small Business Relief. This relief allows a small business to be treated as not having derived any taxable income within a tax period.
Overview of CT and its implications on small businesses in the UAE
Small Business Relief is a game-changer for small businesses operating in the UAE. It allows eligible Resident Taxable Persons, both natural and juridical, to opt for an exemption from UAE Corporate Tax if their revenue meets the criteria. Those who elect for this relief benefit from two significant advantages:
- Administrative Relief: Eligible entities are spared from calculating their Taxable Income, simplifying their tax return filing and record-keeping processes. They can even prepare their Financial Statements using the cash basis of accounting, making financial management more straightforward.
- Tax Relief: Businesses opting for Small Business Relief are not required to pay any Corporate Tax on income earned during the Tax Period.
Here are some additional details about Small Business Relief:
- The reduction is available for tax years beginning after June 1, 2023.
- The revenue threshold of AED 3 million will apply to tax periods that end before or on 31 December 2026.
- A business can elect to claim the Small Business Relief for a particular tax period by filing a notification with the tax authorities.
- The relief can be claimed for multiple consecutive tax periods, as long as the business continues to meet the eligibility criteria.
To qualify for Small Business Relief, a Taxable Person must meet certain criteria:
- Revenue must be less than or equal to AED 3,000,000 for the relevant Tax Period and all previous Tax Periods ending on or before December 31, 2026.
- The election for Small Business Relief must be made within the Tax Return for the respective Tax Period.
- SBR is available to the resident persons inclusive of :
- Juridical person incorporated in the UAE including freezone persons
- Juridical persons incorporated outside the UAE but controlled and managed from UAE
- Any natural person who carries out business or related activity in UAE
- Any person as identified by the cabinet under any decision
Ineligibility for Small Business Relief
While Small Business Relief is designed to benefit a broad range of small businesses, there are exceptions:
- Members of Multinational Enterprise Groups (MNEs): Companies that are part of an MNE with a total consolidated group revenue exceeding AED 3.15 billion are not eligible for Small Business Relief.
- Qualifying Free Zone Persons: Qualifying Free Zone Persons already enjoy a 0% Corporate Tax rate on their Qualifying Income and are, therefore, ineligible for Small Business Relief. Qualifying Free Zone Persons must meet specific criteria to maintain their status.
How Does Small Business Relief Work?
Small Business Relief treats eligible Resident Persons as having no Taxable Income for the relevant Tax Period if their Revenue falls within the specified threshold. This means they are exempt from paying Corporate Tax during that period. The amount of Corporate Tax relief enjoyed by these businesses depends on their profitability.
Impact on Other Corporate Tax Rules
Businesses opting for Small Business Relief are excluded from applying certain other Corporate Tax reliefs and rules. For example, they cannot apply Tax Loss Rules or the General Interest Deduction Limitation Rule for that Tax Period. This is because these reliefs are related to the calculation of Taxable Income, which Small Business Relief effectively eliminates for eligible entities.
Small Business Tax Relief Measures
A business must meet the following conditions to be eligible for Small Business Relief:
- It must be a resident person in the UAE.
- Its revenue for the relevant tax period and previous tax periods must not exceed AED 3 million.
- It must not be a financial institution or a holding company.
If a business meets the criteria for Small Business Relief, it will not have to pay any CT on its profits. It will also be subject to reduced compliance requirements, such as simplified transfer pricing rules.
In conclusion, the Small Business Relief is a valuable tax break for small businesses in the UAE. It can help to reduce the cost of doing business and make it easier for small businesses to grow and succeed. The intent behind the small business tax relief is to support local businesses with lower annual revenue and reduce their costs in order to help them thrive. However, businesses must carefully evaluate whether claiming the relief is beneficial for them in each tax period based on factors like taxable profits, interest costs, and available tax reliefs.
If you are a small business in the UAE and you are interested in learning more about Small Business Relief, please contact CDA today. We would be happy to help you to understand your tax obligations and to ensure that you are taking advantage of all the tax reliefs that are available to you. Our team can provide you with varied accounting and auditing services in the most personalized manner possible. To explore more about our services, reach out to us now.