Small Business Relief in UAE Corporate Tax -The Complete Guide

August 28, 2023 Tax uae, Tax Updates, UAE Corporate Tax No Comments

Small Business Relief helps small businesses in the UAE with Corporate Tax. It makes it easier for them to follow Corporate Tax rules. This relief reduces the work they need to do for Corporate Tax, especially in the beginning.

If a business qualifies (a resident business in the UAE, either a person or a company), and its revenue is AED 3,000,0001 or less in a certain period, it can choose not to count its taxable income for that time. This means it doesn’t have to figure out its taxable income or do a full tax return.

Businesses that choose Small Business Relief get two benefits:

Administrative relief: They don’t have to calculate their taxable income, and they have simpler rules for filing taxes and keeping records. They can even use a simpler way of accounting called the cash basis.3
Tax relief: They don’t have to pay Corporate Tax on the money they make in that period.

Businesses that qualify can choose Small Business Relief when they file their tax return. Once they choose it, they can use a simpler tax return and get the relief.”

Overview of the Small Business Relief

	If election for Small Business Relief is made	If no election for Small Business Relief is made
Required to register for Corporate Tax	✔	✔
Required to file a full Tax Return	✘	✔
Can file a simplified Tax Return	✔	✘
Required to calculate Taxable Income	✘	✔
No Corporate Tax to pay	✔	Depends on the level of Taxable Income
Subject to meeting necessary conditions:
– Can accrue and utilise Tax Losses for the relevant Tax Period	✘	✔
– Can accrue and utilise Excess Interest Expenditure for the relevant Tax Period	✘	✔
– Can carry forward Tax Losses and Excess Interest Expenditure from previous Tax Periods	✔	✔
– Can apply reliefs for transfers within a Qualifying Group or for Business restructuring transactions	✘	✔
– Must comply with transfer pricing documentation requirements	✘	✔
– Must comply with the Arm’s Length Principle	✔	✔

As Table 1 demonstrates, Businesses that elect for Small Business Relief enjoy significant tax and administrative benefits, while remaining subject to a number of compliance requirements.

Revenue threshold

To choose Small Business Relief, the revenue of an eligible taxpayer must be AED 3,000,000 or less for the current and previous tax periods4. If the revenue exceeds this amount in a tax period, the relief can’t be chosen, even if revenue goes below AED 3,000,000 in later periods.

Revenue is defined by UAE’s accepted accounting standards6. It includes total income earned in a tax period, like sales and other income, not just profits. Profits don’t affect eligibility. Arm’s length principle guides revenue determination.

All business activities’ incomes are considered when calculating revenue.

Who is not eligible for Small Business Relief?

Small Business Relief applies to UAE Resident Individuals or Entities with revenue below AED 3,000,000 for the current and prior tax periods. But, two exceptions exist: