Small Business Relief Under UAE Corporate Tax | Humayun Atif CMA,CPA

UAE Corporate Tax

The Corporate Tax Law provides the legislative basis for imposing a federal tax on Corporations and Business profits in the UAE.

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) was issued on 3 October 2022 and in addition to that a Corporate Tax Guide issued in August 2023 for Small Business Relief.

What is Small Business Relief?

It is an effort from the FTA to reduce the compliance obligations faced by small Businesses in the early stages of the Corporate Tax regime and considered as one of the key reliefs available to small businesses in UAE Corporate Tax. It is simply a tax relief that allows eligible Taxable Persons to be treated as having no Taxable Income for small businesses, particularly by discharging them from the burden of paying Corporate Tax. The relief can be claimed for multiple consecutive tax periods until 31 December 2026.

Both Juridical as well as Natural persons are entitled for Small Business Relief but Juridical Persons must include all foreign and UAE income when calculating their Revenue for Small Business Relief purposes. However, Natural Persons should only consider foreign income that is related to their taxable business or business activity in the UAE in addition to their local income.

More details on Natural Person Corporate Tax please review: https://accountingblogger.com/uae-corporate-tax-of-natural-persons/

Benefits

There are two major benefits associated with Small Business Relief including financial benefit as well as administrative one.

Financial Benefit: It includes exemption to pay any Corporate Tax on income earned in the Tax Period if conditions satisfied.

Administrative Benefits: Small Businesses will enjoy simplified tax return filing and record keeping requirements, including the ability to prepare their Financial Statements using the cash basis of accounting. Transfer Pricing documentation rules are also not applied to Businesses in the Tax Period for which they elect for Small Business Relief but businesses must comply with the Arm’s Length Principle.

How to Claim Small Business Relief?

Businesses that want to benefit from the small business relief and meet the required conditions must first:

• register for Corporate Tax with the FTA,
• obtain a Tax Registration Number (TRN),
• file a simplified Tax Return,
• they must make an election in their Tax Return in order to benefit from the relief, and
• maintain records of their revenue to demonstrate eligibility.

It is important to note that Small Business Relief is an optional relief, and Resident Persons that wish to benefit from this advantage must elect for this relief within their Tax Return. Once the Tax Return for the relevant Tax Period has been submitted with no election to benefit from the Small Business Relief, there would be no possibility to claim this benefit at a later stage.

Eligibility for Small Business Relief

Businesses seeking eligibility for Small Business Relief in the UAE must meet the following stipulations:

• They must qualify as resident persons in the UAE.
• Their revenue for the relevant tax period and preceding tax periods must not surpass AED 3 million.
• They must not operate as financial institutions or holding companies.

Ineligibility for Small Business Relief

Small business relief will not be available in the following cases:

• Where the business is a member of a Multinational Enterprise Group (MNE).
• Where the business is a qualifying free zone person.
• Where a business is artificially separated into more than one entity to reduce the revenue of each entity below the threshold limit for small business relief.

Impact of the Small Business Relief on other Corporate Tax rules

Article 5 states many conditions which has impact of Small Business Relief on Other Corporate Tax Rules if one is opting for the Small Business Relief and those rules includes Tax Losses, General Interest Deduction Limitation Rules, Exempt Income, Other Reliefs, Deductions and Tax Groups so it’s recommended to visit Article 5 of Small Business Relief guide issued in August 2023 by FTA.

Tax Groups

A Tax Group can elect for Small Business Relief if its Revenue is equal to or below AED 3 million as a single Taxable Person, the Revenue threshold for Small Business Relief will apply to the Tax Group as a whole, rather than to each member of the Tax Group. Irrespective of how many companies make up the Tax Group, the Revenue threshold of AED 3,000,000 will apply to the Tax Group as a whole.

Record Keeping

• All Businesses must keep records and documents for seven years following the end of the Tax Period to which they relate.
• Businesses that elect for Small Business Relief will be able to prepare financial statements based on the cash basis of accounting, if their revenue does not exceed AED 3,000,000.
• Revenue is the gross amount of income derived during a Tax Period calculated according to applicable accounting standards.
• Taxable Persons must provide the FTA with any information, documents or records reasonably required by the FTA when requested to do so.

Timeline

This relief is available for tax years beginning after June 1, 2023, until the tax period ending on or before 31 December 2026. The relief is therefore set to be ap­pli­ca­ble for 3 tax years.

Summary

• Small Business Relief is a valuable tax break for small businesses.
• For a business to avail small business relief, it’s revenue for each of the relevant tax periods should not cross AED 3M.
• It can be availed only until the tax period ending on or before 31 December 2026.
• Revenue for the purpose of determining threshold limit means gross amount of income received during the relevant tax period.
• Businesses will have to register for corporate tax despite choosing to elect for small business relief.
• The election for small business relief is made through the filing of a tax return.
• They will have to file only a simplified tax return.
• Once the Tax Return is submitted without this election, the benefit cannot be claimed later.
• The revenue threshold for small business relief will apply to tax group rather than to each member of the tax group.
• Businesses do not need to apply the general interest deduction limitation rule during the period in which the relief is adopted.

To benefit from Small Business Relief, one must meticulously study all laws and guidelines issued from FTA before making any decision.

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a Tax and IFRS coach and the founder of accountingblogger.com