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Conditions for Small Business Relief under Corporate Tax in UAE

Small Business Relief is a type of relief from corporate tax in UAE that can be utilized by some businesses that qualify as small businesses. It is different from a zero percent corporate tax rate advantage and has its own conditions and criteria. This article explains the eligibility conditions for businesses to avail of small business relief under corporate tax in UAE. 

1. Conditions and Criteria for Small Business Relief under Corporate Tax

Following are some basic conditions for small business relief under corporate tax law;

  • Revenue Threshold: Business whose relevant income in all past periods and in the present relevant period does not exceed 3,000,000 dirhams.  
  • Election for Relief: When a business’s relevant income from past and present periods does not exceed 3,000,000 dirhams then it has to elect and apply for small business relief in its tax return. Election for small business relief is required for each relevant period separately. Without electing and applying, one can not avail of the advantages of small business relief.
  • Registration: Even if the business meets the above criterion for small business relief and approves its income as non-taxable income, it still has to register with the Federal Tax Authority for the purposes of corporate tax and receive a Tax Registration Number. 

2. Restriction to Tax Period Ending on or before 31 December 2026

Only those taxable periods that started on or after June 1, 2023, will be able to get small business relief. Moreover, only those taxable periods that end on or prior to December 31, 2026, will be able to get small business relief. The condition is that the income generated in all previous and present relevant taxable periods should not exceed the 3,000,000 dirhams threshold.

3. Resident Persons: Natural Persons & Juridical Persons

Resident persons can be juridical persons (companies), natural persons (individuals), or freezone persons. Juridical persons who fall under the scope of corporate tax can elect for small business relief from corporate tax in UAE only if they meet the conditions. Not all types of incomes of natural persons are subject to corporate tax. But if some income of a natural person falls under the scope of corporate tax, then the natural person can apply for small tax relief by meeting the criterion. Moreover, Freezone persons can also be eligible to elect for small business relief under corporation tax.

4. Exclusion of Constituents of MNEs

Businesses operating in the UAE that are constituents of large multinational entities will not be able to benefit from small business relief even if they meet the criterion. This is because MNEs are large businesses that operate globally and they have to comply with the tax laws of all those companies in which they operate or their constituents operate. 

5. Exclusion of Qualifying Freezone Persons

Qualifying freezone persons enjoy a distinct zero percent corporate tax rate. There is one condition that allows the qualifying freezone persons to elect for small business relief i.e., if the qualifying freezone person chooses to be subject to corporate tax according to Article 19 of the corporate tax law. This makes the qualifying freezone person a Freezone person for a specific taxable period.

6. Permanent Establishments of Non-Resident Persons

Permanent Establishments that belong to non-resident persons are not deemed resident persons, therefore, they will not be able to enjoy small business relief in the UAE. However, there is one condition that can make the PEs eligible for this relief i.e., if the non-resident persons belong to such a country that is involved in a DTT (double tax treaty) with the UAE and if the DTT requires non-discrimination of PEs according to the UN Model Double Tax Convention or the OECD Model Tax Convention.

7. UAE Sourced Income & Foreign Income

Most businesses in the UAE today are earning both types of income i.e., UAE sourced income as well as foreign income. When it comes to calculating income for tax purposes, it is important to include foreign income otherwise the calculation will be faulty. Similarly, in the case of small business relief, a business should calculate its net income including the foreign income, and then determine whether or not it can apply for small business relief in the UAE.

8. Accounting Standards for Revenue Calculation

Accounting and reporting standards are collections of principles and procedures overseen by regulatory authorities that control how corporations record the results of their fiscal activities. Because some standards and regulations are different for the various regulatory agencies, the decision on the type of accounting standard would decide and can affect the amount of income that a company is thought to have produced in a taxable year. Companies who choose to apply for small business relief will have the advantage of being allowed to generate cash-basis financial statements only when their annual income is less than the 3,000,000 dirhams threshold.

9. Implications for Resident Persons that are VAT Registered

Many businesses in the UAE fall under the scope of Value Added Tax. These businesses charge their customers VAT on various products and services that they provide. This amount does not belong to the business rather it belongs to the Federal Tax Authority to which it is sent. Businesses should not include the amount of VAT they have collected in their net income as this would result in miscalculation. 

Choose Corporate Tax Advisory Services

It is advisable for businesses to choose Corporate Tax Advisory Services to learn more about different provisions of corporate tax, including small business relief. Top Tax Consultants in UAE also assist Taxable Persons to ensure compliance with corporate tax regulations. Thus, contact us today and we shall be glad to assist you. 

Read More: Corporate Tax Registration for Free Zone Persons in UAE

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.