Small Business Relief in UAE Corporate Tax: The Complete Guide in 2024

Rajinder Nagiyal

March 1, 2024

UAE Corporate Tax

Small Business Relief in UAE Corporate Tax: The Complete Guide in 2024

The United Arab Emirates (UAE) has long been a hub for entrepreneurship and business development, attracting small enterprises from around the world. In recognition of the vital role small businesses play in the economy, the UAE government has implemented various measures to support them, particularly in the realm of corporate taxation.

The Small Business Relief is one of the main reliefs offered to small UAE businesses. A small business may be regarded as not having received any taxable income within a tax period thanks to this relief.

However, navigating the landscape of Small Business Relief in the UAE in 2024 requires a comprehensive understanding of the available incentives, regulations, and eligibility criteria. This guide aims to provide clarity on these matters, equipping small business owners with the knowledge they need to thrive in the UAE.

Introduction of Corporate Tax in the UAE

The UAE corporate tax regime was introduced with effect from 1 June 2023, marking a significant shift in the country’s taxation system. Corporate tax is a form of direct tax levied on the net income of a company or other business entity. The introduction of corporate tax represented a change in approach towards fiscal policy, aimed at enhancing the country’s economic sustainability and diversification

How Does Small Business Relief Work?

For small companies doing business in the UAE, Small Business Relief is a huge blessing. If their revenue satisfies certain requirements, it enables qualified Resident Taxable Persons, both legal and natural, to opt for an exemption from UAE Corporate Tax.

Those who choose to take advantage of this relief benefits from two important privileges:

Administrative Relief

With this, eligible enterprises are exempted from calculating their Taxable Income. This enables small businesses to streamline the filing of their tax returns and the maintenance of their records with much ease. They can even use the cash basis of accounting to generate their financial statements, which simplifies financial management.

Tax Relief

Companies that choose to enroll in Small Business Relief are exempt from paying corporate taxes on earnings made during the Tax Period.

Below are some more specifics regarding Small Business Relief:

The exemption is only applicable for tax years beginning after June 1, 2023
The AED 3 million revenue threshold will be in effect for tax periods ending on or before December 31, 2026.
Businesses are to notify the tax authorities if they choose to claim the Small Business Relief for a specific tax term.

If the business meets the eligibility requirements, it can claim the relief for a number of successive tax periods.

Eligibility Criteria for UAE Corporate Tax Relief

A Taxable Person must fulfill specific requirements in order to be eligible for Small Business Relief:

For the relevant Tax Period and all prior Tax Periods ending on or before December 31, 2026, revenue must be less than or equal to AED 3,000,000.

Within the Tax Return for the relevant Tax Period, the Small Business Relief election must be made.

Small Business Relief is accessible to qualified residents, including:

Legal persons incorporated in the UAE, including those in free zones
Legal persons that are not based in the UAE but are governed and managed from the UAE.
Anyone who is a natural person and does business or related activities in the UAE
Any individual as determined by the cabinet in any given decision.

Exceptions to the Rule

There are few exceptions to the general rule that Small Business Relief is meant to assist small businesses of all kinds:

Individuals who are part of multinational enterprise groups (MNEs)

Small Business Relief is not available to companies that are a part of a multinational enterprise (MNE) and whose total consolidated group revenue exceeds AED 3.15 billion.

Qualifying Free Zone Individuals

These individuals are not eligible for Small Business Relief since they already benefit from a 0% corporate tax rate on their qualifying income.

Effect on Other Corporate Tax Regulations

Certain other corporate tax reliefs such as the General Interest Deduction Limitation Rule or the Tax Loss Rules are not applicable to businesses that choose Small Business Relief. This is so because, for qualifying businesses, Small Business Relief essentially eliminates the need to calculate Taxable Income, which is a component of these other reliefs.

Measures for CT Reliefs Available for Small Businesses

To be qualified for CT Reliefs, a company needs to fulfill the following requirements:

It has to be a UAE citizen or resident.
Its income for both the current and prior tax years cannot be more than AED 3 million.
It can’t be a holding corporation or a financial institution

To sum up, the UAE’s Small Business Relief represents a significant tax benefit for small enterprises. The goal of the small business tax relief is to assist local companies who have smaller yearly revenue by lowering expenses and promoting their growth. However, based on variables including taxable profits, interest expenses, and available tax reliefs, firms must carefully consider whether claiming the relief is advantageous for them in each tax period.

If you are a small business owner in the UAE and would like more information on Small Business Relief, kindly get in touch with us today. We would be pleased to assist you in understanding your tax responsibilities and making sure you are utilizing all of your possible tax

FAQ

Q: What is the current status of corporate tax in the UAE?

A: As of 1 June 2023, the United Arab Emirates (UAE) introduced corporate tax for the first time, impacting small businesses and companies operating in the country.

Q: What are the key implications of the corporate tax introduction on free zone companies?

A: Free zone companies that were previously exempt from corporate tax are now subject to the new tax law unless they qualify for specific exemptions as per the UAE corporate tax regulations.

Q: How can a company determine if it is subject to corporate tax in the UAE?

A: Companies should refer to the UAE corporate tax law and regulations to assess if they meet the criteria to be subject to corporate tax based on their business activities and income generated within the UAE.

Q: What are the exemptions available for corporate tax in the UAE?

A: Certain natural persons and entities may be exempt from corporate tax as per the provisions outlined in the UAE corporate tax law, subject to fulfilling specific conditions.

Q: What is the process for companies to register for corporate tax in the UAE?

A: Companies need to follow the guidelines provided by the Federal Tax Authority and Ministry of Finance to obtain corporate tax registration and comply with the UAE corporate tax regime.

Q: What are the consequences of not fulfilling corporate tax obligations in the UAE?

A: Companies failing to meet their corporate tax liabilities and obligations under the UAE corporate tax law may face penalties and legal repercussions, impacting their business operations.