What is Small Business Relief within the context of the UAE Corporate Tax?

Overview of UAE’s New Corporate Tax Regime and Small Business Relief

Effective from 1 June 2023, the UAE introduced a new corporate tax regime, requiring taxpayers to pay corporate tax on their earnings. To support small businesses, the UAE government has launched a program called Small Business Relief, which offers exemptions from this tax for qualifying entities.

Understanding Small Business Relief

Small Business Relief is designed to assist eligible resident taxpayers—both individuals and entities—by providing an exemption from UAE corporate tax, provided their revenue meets specific criteria. Here’s what you need to know about the program:

Administrative Relief: Qualifying businesses benefit from reduced administrative burdens. They are not required to adhere to stringent bookkeeping and reporting requirements. Instead, they can use simpler cash-based accounting systems, making financial management easier.

Tax Relief: Businesses that qualify for Small Business Relief are exempt from paying corporate tax on their taxable income for the relevant period. Compliance requirements for these businesses are also more lenient, including simplified transfer pricing rules.

If you are a small business owner in the UAE, it’s crucial to understand the details of Small Business Relief and determine whether your business is eligible for this tax exemption.

Eligibility for Small Business Relief

Resident taxpayers in the UAE, both individuals and entities, may qualify for small business relief if they meet the following criteria:

Revenue Limit: They must have a maximum revenue of AED 3 million for the relevant tax period and all previous tax periods ending on or before 31 December 2026.

Application: They must opt for the relief within their tax return for the applicable tax period.

Exclusions: Taxpayers must not be financial institutions or holding companies.

Eligible entities include:

Juridical persons incorporated in the UAE, including those in free zones.

Juridical persons incorporated outside the UAE but controlled and managed within the UAE.

Natural persons engaged in business or business activities within the UAE.

Any person identified by cabinet decision under relevant provisions.

Ineligible for Small Business Relief

The following entities cannot claim small business relief in the UAE:

Multinational Enterprise Groups (MNEs): Businesses belonging to large MNE groups with a consolidated group revenue exceeding AED 3.5 billion are not eligible.

Qualifying Free Zone Persons: Entities already benefiting from a 0% corporate tax rate in free zones are not eligible for additional relief under this scheme.

To optimize the benefit of small business relief, businesses should verify their eligibility and ensure the relief aligns with their profit levels. Additionally, claiming small business relief precludes claiming other tax benefits. Therefore, it’s essential for businesses to consider all factors before applying.

For accurate and efficient accounting, businesses should maintain precise records of their turnover. If managing accounts is challenging, consider using Thevatconsultant.

Thevatconsultant is a robust accounting software designed for small businesses to maintain accurate records effortlessly. It offers features to track cash balance, annual turnover, generate balance sheets, and produce business reports, thereby enhancing business management and productivity.