If you’re running a small business in the UAE, you’re already familiar with the challenges of staying competitive in a fast-paced market. Between managing cash flow, hiring the right talent, and ensuring your products or services stand out, taxes might not be at the top of your list. However, with the introduction of Small Business Relief under the new UAE Corporate Tax Law, there’s a potential for significant tax savings that could ease the financial pressure and free up resources for growth.
Let’s break down everything you need to know about this relief—how it works, who qualifies, and how it can help your business stay on track.
What Is Small Business Relief Under UAE Corporate Tax?
Small Business Relief is a provision introduced as part of the UAE’s Corporate Tax framework to support smaller businesses by reducing their corporate tax burden. This provision is particularly important in the UAE, where small and medium-sized enterprises (SMEs) contribute significantly to the economy.
Under the Federal Decree-Law No. 47 of 2022, eligible small businesses with annual revenues below a specified threshold are exempt from paying corporate tax. This relief enables businesses to reinvest savings into their operations, encouraging growth and job creation within the country.
Key Highlights:
- Revenue Limit: Businesses earning under AED 3 million annually qualify for the exemption.
- Corporate Tax Exemption: Eligible businesses will not pay corporate tax on profits up to a certain limit.
- Filing Requirement: While no tax is due, businesses must still file their tax returns.
Who Can Benefit from Small Business Relief?
To access the benefits of this relief, your business must meet the following criteria:
1. Revenue Threshold
Your business must have less than AED 3 million in annual revenue. This threshold applies for each tax period until December 31, 2026.
If your revenue exceeds AED 3 million in a given year, your business will no longer be eligible for the relief in the following tax period.
2. UAE Resident Status
Only UAE resident businesses qualify. This includes companies incorporated in the UAE, those operating in free zones, and businesses controlled and managed from within the country.
3. Tax Registration
Your business must be registered for corporate tax and hold a Tax Registration Number (TRN) to be eligible for the relief.
4. Opting-in Requirement
To claim the relief, businesses must notify the UAE Federal Tax Authority (FTA) by filing the appropriate documentation. If this step is missed, the exemption can’t be applied retroactively.
Who Does Not Qualify for Small Business Relief?
Not all businesses are eligible for Small Business Relief. Here’s a breakdown of who doesn’t qualify:
1. Multinational Enterprises (MNEs)
If your business is part of a multinational group with consolidated global revenues over AED 3.15 billion, it will not be eligible for Small Business Relief, regardless of its individual income.
2. Free Zone Entities
Businesses that qualify for the 0% corporate tax rate in UAE free zones (known as Qualified Free Zone Persons or QFZP) are also ineligible for this relief, as they already benefit from favorable tax rates.
3. Artificial Structuring
The UAE tax authorities are vigilant about businesses artificially restructuring to stay below the revenue cap. If your business artificially divides its operations to avoid paying taxes, you could face penalties, including retroactive tax payments.
How Does Small Business Relief Work?
The key advantage of Small Business Relief is its simplicity. If your business qualifies, you’re essentially exempt from paying corporate tax on profits up to AED 375,000.
Here’s a breakdown of how it works:
- Exemption on Profits: Corporate tax is not levied on the first AED 375,000 of taxable income.
- Taxable Profits Beyond AED 375,000: Any profits above this threshold are taxed at the standard 9% rate.
- Simplified Accounting: Small businesses are allowed to use the cash basis of accounting, making it easier to track income and expenses.
This provision is designed to encourage growth by providing businesses the opportunity to reinvest their profits rather than spend them on taxes.
VAT and Small Business Relief
If your business is registered for Value Added Tax (VAT), it’s important to note that Small Business Relief does not affect VAT obligations. Even if you’re exempt from corporate tax, you are still required to collect and remit VAT on your taxable sales.
However, the VAT collected is not part of the corporate tax calculation. This means that it doesn’t impact your eligibility for SBR.
What About Other Corporate Tax Reliefs?
When opting for Small Business Relief, businesses should be aware that certain corporate tax rules will not apply. For example:
- Tax Loss Carryforward: Normally, businesses can carry forward losses to offset future taxable income. However, businesses under Small Business Relief cannot apply this provision.
- Interest Deduction Limitations: The usual rules limiting the deductibility of interest expenses are also waived under this relief.
- Exempt Income and Deductions: Other exemptions (like those for investment income) are also rendered unnecessary since your entire revenue is treated as non-taxable under this relief.
Tips for Maximizing the Benefits of Small Business Relief
While the relief offers substantial tax savings, it’s essential to manage your business finances efficiently. Consider using the services of Fair Tax International.
Conclusion
The Small Business Relief is a significant opportunity for small businesses in the UAE to reduce their tax burden and reinvest in their growth. By understanding the eligibility criteria, how it works, and the implications for your business, you can ensure that you’re making the most of this valuable benefit.