The United Arab Emirates (UAE) introduced the Corporate Tax business relief for small businesses, which is a tax exemption offered to eligible resident businesses to support their growth and minimise their initial compliance burden.
Article 2(1) of Ministerial Decision No. 73 of 2023 on Small Business Relief defines an eligible taxable person for small business relief as below:
1. The taxable person’s revenue threshold for the relevant tax period and previous tax periods shall be below or equal to AED 3,000,000 (three million UAE dirhams) for each tax period.
2. It shall apply to tax periods commencing on or after June 1, 2023, and such threshold shall only continue to apply to subsequent tax periods that end before or on December 31, 2026.
It is also important to note that the amount of corporate tax liability that is not payable based on the relief will depend on the profitability of the business. Corporate tax would thus be paid at a rate of 0% on taxable income up to AED 375,000 and 9% on taxable income above AED 375,000 if small business relief is not applied for.
The revenue for the purpose of this article shall be determined in accordance with the applicable accounting standards accepted in the UAE. Without prejudice to the provisions of Clause 1 of this Article, a taxable person deriving revenue that does not exceed AED 50,000,000 (Fifty Million UAE Dirhams) may apply International Financial Reporting Standards for Small and Medium-sized Entities (“IFRS for SMEs”).
Claiming for Small Business Relief
Resident persons that wish to benefit from the Small Business Relief advantage must elect for this relief within their tax return. This election is for each tax period in which a tax return is filed. Once a tax return is submitted without any election, there is no possibility of making a claim at a later stage. Thus, the eligible business must first register with the Federal Tax Authority (FTA) for corporate tax, obtain a Tax Registration Number (TRN), and then claim relief for the particular year.
What Are the Benefits of Applying for Corporate Tax Small Business Relief?
Eligible tax persons will:
1. Be considered to have no taxable income for the relevant tax period.
2. Not pay corporate tax.
3. Not maintain transfer pricing documentation.
4. Be able to prepare financial statements based on cash-basis accounting.
Eligibility Conditions for Small Business Relief
The Corporate Tax Relief for Small Businesses is applicable to:
Natural Person: If natural persons are individuals and derive income from businesses or business activities above the AED 1,000,000 threshold during a Gregorian calendar year, then they will be subject to Corporate Tax and will be required to register for Corporate Tax. In this instance, he may be able to claim small business relief if they meet the requirements of small business relief.
Juridical Persons: Juridical persons are entities that have a separate legal personality from their owners. Common examples include Limited Liability Companies (LLCs), Private Shareholding Companies (PSCs) and Public Joint Stock companies (PSJCs). A judicial person will be a resident person.
1. If it is incorporated or recognised under the applicable legislation in the UAE.
2. Incorporated or recognised under the applicable legislation outside the UAE but managed and controlled in the UAE.
Who Is Not Eligible For Small Business Relief?
Businesses are not eligible for small business relief when:
1. The business is a member of a Multinational Enterprise (MNE) group. 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.
2. The business is a Qualifying Free Zone Person (QFZP).
3. A person artificially separates their businesses into more than one entity to ensure that the revenue of each entity is below the threshold for small business relief.
Eligibility Requirements for Corporate Tax Relief for Small Businesses
The eligible tax persons are:
1. Will not accrue, utilise, or transfer any tax losses. However, previous tax losses from the period in which relief was not claimed can continue to be carried over to the next tax period.
2. Cannot accrue or utilise any net interest expenditure in that tax period, nor carry it forward to any subsequent tax periods. However, similar to the above, previous net interest expenditures from the period in which relief was not claimed can continue to be carried over to the next tax period.
3. Other reliefs available in the act will not be available. This includes not being able to transfer assets at net book value within a qualifying group and business restructuring relief. This means all income, including non-taxable or exempt income, must be included when a person calculates its revenue for determining eligibility under Small Business Relief.
Compliance Requirements
1. Requirement to self-assess, register, file a return, and make an election: An eligible taxable person will continue to be required to meet its Corporate Tax compliance obligations in each tax period. This includes the obligation to register for Corporate Tax, file a simplified tax return, and retain all relevant documents and records to support their Corporate Tax filings.
2. Records required must be filed to demonstrate revenue. As every business is different, there is no prescribed list of documentation or records that should be maintained. However, examples of documents that need to be kept include, but are not limited to, bank statements, sales ledgers, etc. Taxable persons must provide the FTA with any information, documents, or records required by the FTA when requested to do so
3. Record-keeping period: All businesses must keep records and documents for seven years following the end of the tax period to which they relate.
Administrative Penalties
Penalties applicable for taxes are the same across the board, including penalties for late or non-filing of tax returns such as:
1. Failure of the registrant to submit a tax return within the timeframe specified in the Corporate Tax law will result in a penalty of:
2. AED 500 for each month of delay, or part thereof, for the first twelve months.
3. AED 1,000 for each month of delay, or part thereof, from the thirteenth month onwards.
4. Failure of the Taxable Person to settle the Payable Tax
A monthly penalty of 14% per annum, for each month or part thereof, on the unsettled payable tax amount from the day following the due date of payment and on the same date monthly thereafter
For the purposes of this penalty, the due date of payment in the case of the voluntary disclosure and tax assessment shall be as follows:
1. 20 business days from the date of submission, in the case of a voluntary disclosure.
2. 20 business days from the date of receipt, in the case of a tax assessment
How Can We Help?
Navigating the nuances of Corporate tax and Business Relief can be confusing, even for seasoned business owners. That’s where we come in! We offer a range of resources and services to help you understand and leverage this valuable tax exemption.
Our expert team is here to support your business every step of the way. Whether you are seeking guidance on tax optimisation or understanding the latest updates on Corporate Tax in the UAE, we are committed to providing personalised assistance tailored to your needs. Contact the team of tax experts at Gatestone Group for a free consultation via email at info@gatestonegroup.com or call +971 4 450 1023.
Author: Mohamed Noordeen – Head of Finance and Tax
