The UAE Corporate Tax (CT) has been in effect from June 1, 2023. This tax is applied to corporations based on a specific profit threshold. But when it comes to corporate tax, the UAE Government has introduced specific exemptions for small businesses. The exemption is known as the Small Business Relief.
This relief offers eligible enterprises tax exemptions within a specified period. Small Business Relief aims to alleviate the Corporate Tax burden. It reduces compliance expenses for startups and other small or micro-enterprises, offering them support during the initial stages. You can get in touch with tax consultants in Dubai to determine the implications of Small Business Relief for your enterprise.
In the rest of the guide, we’ll explore all you need to know about the Small Business Relief in UAE corporate tax.
Overview of Small Business Tax Relief Under UAE Corporate Tax
The Ministry of Finance has released Ministerial Decision No. 73 of 2023 concerning Small Business Relief under Federal Decree-Law No. 47 of 2022 on Corporate and Business Taxation (referred to as the “Corporate Tax Law”).
This decision aligns with Article 21 of the Corporate Tax Law, which stipulates that if revenue falls below a specific threshold, the taxable entity will be treated as if it had not generated any taxable income during that tax period. They will be able to get a small business relief under the UAE Corporate Tax.
Small Business Relief represents a significant opportunity for businesses in the UAE. It permits qualifying Resident Taxable Persons, whether individuals or entities, to choose exemption from Corporate Tax in UAE provided their revenue meets specific requirements.
What are the Reliefs That Eligible Small Businesses Can Enjoy Under Corporate Tax?
Under Corporate Tax, eligible small businesses can avail themselves of two significant reliefs: Administrative Relief and Tax Relief. Administrative Relief liberates qualifying entities from the laborious task of computing Taxable Income, simplifying tax return filing and record-keeping processes.
Additionally, they have the flexibility to adopt the cash basis of accounting for Financial Statements preparation, easing financial management.
On the other hand, Tax Relief exempts businesses from remitting any Corporate Tax on income earned during the Tax Period, providing them with a significant financial advantage.
Eligibility Criteria for Small Business Relief
In order to be eligible for Small Business Relief, a Taxable Person must satisfy specific conditions:
- Revenue must be less than or equal to AED 3,000,000 for the relevant Tax Period and all preceding Tax Periods.
- The choice or election to avail of Small Business Relief must be indicated within the Tax Return for the corresponding Tax Period.
- The business must be a resident entity in the UAE.
- The business must not operate as a financial institution or a holding company.
Ineligibility for Small Business Relief
The small business relief is designed to offer support to small businesses. But certain business types are exempt from applying for it:
Members of Multinational Enterprise Groups (MNEs)
Entities belonging to an MNE with a total consolidated group revenue surpassing AED 3.15 billion do not qualify for Small Business Relief.
Qualifying Free Zone Persons
Individuals eligible for a 0% Corporate Tax rate on their Qualifying Income in Free Zones are ineligible for Small Business Relief. These individuals must adhere to specific criteria to retain their status.
Conclusion
The Small Business Relief initiative in the UAE offers notable tax incentives tailored for small enterprises. It is aimed at mitigating operational costs and facilitating expansion. The small business relief is intended to bolster local businesses with modest revenue streams. The relief depends on different variables like taxable profits, interest outlays, and the availability of other tax alleviations.
