Federal Tax Authority has announced Small Business Relief for supporting small & medium enterprises as well as startups by way of reducing their tax compliances and administrative burdens. This relief has been highly welcomed by the business community in the UAE.

FTA has published a detailed guide on Small Business Relief (Corporate Tax Guide | CTGSBR1 Small Business Relief). In this article, we will enlighten you on the benefits of Small Business Relief, when to elect this relief and when not to elect it.

Advantages and Disadvantages of Availing Small Business Relief in UAE Corporate Tax

Advantages

1.Tax Exemption

Those who are eligible for this Small Business Relief, file the Corporate Tax Return and can declare that they do not have taxable income in the relevant tax period. This means, that if the revenue is below AED 3 Million and at the time of choosing Small Business Relief, it is considered that there is no taxable income and no Corporate Tax Liability.

2. Simplified Compliance

Small businesses can benefit from simplified tax compliance requirements, as they are not required to carry forward tax losses or net interest expenditures incurred during the periods they elect for small business relief. This will give a big relief to small businesses from administrative burden as they are required to declare their revenue at submit the tax return.

3. Cash Flow Management

By reducing or eliminating the Corporate Tax burden, small businesses can better manage their cash flow, allowing them to reinvest in their operations and growth.

4. Transfer Pricing Documents

The taxable person who opts for small business relief is not required to prepare transfer pricing documents for UAE Corporate Tax purposes. However, the transaction between related parties is required to be at Arm’s Length.

Disadvantages

1. Ineligibility for Other Reliefs

Businesses that opt for small business relief cannot carry forward tax losses or net interest expenditures to subsequent tax periods. This could be a disadvantage if the business incurs significant losses or interest expenses.

2. Revenue Threshold Limitation

The relief is only available to businesses with revenue not exceeding AED 3 million per tax period. If a business’s revenue exceeds this threshold in any relevant or previous tax period, it becomes ineligible for the relief.

3. Artificial Separation of Business

The Federal Tax Authority may consider the artificial separation of business activities to fall under arrangements to obtain a Corporate Tax advantage, which could lead to penalties and disqualification from the relief.

4. Exclusion of Certain Entities

Certain entities, such as constituent companies of multinational enterprise groups and qualifying free zone persons, are not eligible for small business relief.

Key points regarding Small Business Relief in UAE

• Corporate Tax registration and return filing – The taxable person who is eligible for small business relief is still required to comply with tax registration and return filing compliances. The election of small business relief is available at the time of filing tax return, it is not automatic relief.
• Small Business Relief can be availed by resident persons only. This means, that both natural persons and juridical persons who are residents for UAE Corporate Tax purposes can elect Small Business Relief. At the same time, a non-resident who has a Permanent Establishment or Nexus in the UAE is not eligible for Small Business Relief.
• When to elect Small Business Relief? If the taxable person has made a taxable profit of AED 375,000 or more, it is ideal to elect the Small Business Relief. On the other hand, if the revenue is below AED 3 Million and the taxable person has recorded a tax loss, it is not recommended that small business relief be elected as the recorded tax loss cannot be carried forward.
• Small Business Relief is applicable for those taxable persons whose annual revenue is less than 3 Million Dirhams. Such taxable persons are, by default, following a cash basis of accounting and need to elect an accrual basis, if they wish to change.
• Small Business Relief is available for the tax periods ending before 31 December 2026. During these tax periods, current tax periods or previous tax periods, if the taxable person exceeds the revenue threshold of AED 3 Million is not eligible for Small Business Relief in the current tax year or future tax years.
• If the tax period of the company is longer (12 months to 18 months) or shorter (6 months to 12 months), the threshold of AED 3 Million is calculated for such a longer or shorter period.

Conclusion

The Small Business Relief in the UAE is a significant initiative aimed at fostering a favorable environment for small enterprises, driving growth and innovation in the economy. However, businesses should be aware of the implications as they grow and plan accordingly.