Confused about UAE’s Corporate Tax for your small business? Don’t worry! This guide explains the Small Business Relief program offering tax exemption and simplified compliance
What Constitutes a Small Business
A taxable person with revenue from the relevant tax period and the previous tax period not exceeding AED 3 million (revenue threshold) is eligible to apply to the Federal Tax Authority (FTA) for availing the Small Business Relief. The small business relief is applicable to a specific time period. The revenue is determined as per the International Financial Reporting Standards.
What is Small Business Relief?
Entities with revenue below the threshold limit can claim Small Business Relief where the entity will be treated as having no taxable income during the relevant tax period and will be subject to simplified compliance requirements.
When Will the Small Business Relief Be Available?
The Small Business Relief (SBR) will be available for tax periods that start on or after 1st June 2023 and continue to apply for subsequent periods until the tax period that ends on or before 31st December 2026.
A taxable person cannot apply the SBR if their revenue exceeds the threshold limit in any relevant or previous tax periods.
Who can apply for SBR?
Any UAE resident juridical person or natural person with revenues below the threshold limits who is not falling under the following category of persons can apply for SBR:
- A member company of a Multinational Enterprises Group or
- A Qualifying Free Zone Entity
Who is considered a Multinational Enterprises Group?
Multinational Enterprises Groups (MNE Groups) are groups of companies with operations in more than one country that have consolidated group revenues of more than Euro 750 million or approximately AED 3.15 billion.
How does the Tax Loss Relief apply to entities who have opted for small business relief?
When an entity makes an election to apply the SBR, the tax losses incurred during the period of election cannot be carried forward to any subsequent tax periods.
Any tax loss incurred before the election to Small Business Status for claiming SBR can be carried forward to future tax periods where an election to apply for small business status is not made, subject to the provisions of Tax loss as specified in the CT law.
Are there any additional benefits to applying for Small Business Relief?
Businesses electing for the Small Business Relief will not be required to file transfer pricing documentation, eliminating the requirement to file a transfer pricing information disclosure form together with a Tax Return and maintenance of a master file and a local file. However, businesses must ensure compliance with the transfer pricing rules and transactions with Related Parties must meet the arm’s length principle.
What is the impact on revenue exceeding the threshold limit?
An entity will not be eligible for election to Small Business Relief once the Revenue exceeds AED 3 million in a Tax Period, for the applicable tax period and future tax periods.
How does the provision of Artificial separation of Business apply in SBR?
Ministerial Decision 73 of 2023 prescribes that entities and individuals who without a valid commercial purpose separate the business and elect to apply for SBR in order to avail Corporate Tax advantage will be subject to the General Anti-Abuse Provisions of the CT law that empowers the authority to take action against tax abuses in the defined set of circumstances.
Part of ATB Legal’s Corporate & Commercial practice.