Small Business Relief

An Overview:

Small Business Relief is extended to businesses that are resident for Corporate Tax purposes in the UAE. Businesses with revenue below or equal to AED 3,000,000 can opt for Small Business Relief in their Tax Return, reducing compliance obligations and the burden of calculating and paying Corporate Tax. This relief comes with benefits such as simplified return filing and exemption from transfer pricing documentation.
It's important to note that the revenue threshold for Small Business Relief applies to the Tax Group as a whole, rather than to each member of the Tax Group.

Eligibility for Small Business Relief: Who is Not Eligible?

Not eligible for Small Business Relief are members of a Multinational Enterprise Group (MNE) and Qualifying Free Zone Persons (QFZP). However, Free Zone Persons that do not qualify as Qualifying Free Zone Persons are eligible for Small Business Relief.

How Does Small Business Relief Work?

Small Business Relief offers a 0% tax rate on Taxable Income up to AED 375,000, and 9% on Taxable Income above AED 375,000 (had the relief not been elected for). Businesses seeking to claim this relief must first register with the FTA for Corporate Tax, obtain a TRN, and demonstrate their eligibility by keeping records of their revenue, including bank statements, sales ledgers, invoices, order records, and other relevant business correspondence.

All businesses must retain these records for seven years following the end of the Tax Period.

What Does it Mean to Have No Taxable Income?

To calculate their Taxable Income, businesses have to make adjustments for Corporate Tax, which include excluding Exempt Income, such as dividends, and adding back non-deductible expenditures, such as fines. In contrast, under Small Business Relief, businesses do not have to calculate their Taxable Income.

Tax Losses and General Interest Deduction Limitation Rule

If eligible for Small Business Relief, businesses cannot accrue, utilize, or transfer any Tax Losses. However, Tax Losses can be carried forward for use in the next Tax Period without the relief. Similarly, the general Interest deduction limitation rule does not apply to businesses that have elected for Small Business Relief.

Businesses can deduct their Net Interest Expenditure up to 30% of their accounting earnings before the deduction of interest, tax, depreciation and amortization (EBITDA) in that Tax Period - this is known as the general Interest deduction limitation rule. These rules only apply to Businesses whose Net Interest Expenditure is greater than a set threshold which is 12,000,000 AED and can be carried forward for ten Tax Periods from the period in which the Net Interest Expenditure was disallowed.

Other Reliefs and Restrictions

Various reliefs, such as transfer of assets within a Qualifying Group and Business Restructuring Relief, do not apply when a Resident Person has elected for Small Business Relief. Small Business Relief is available for Tax Periods beginning on or after June 1, 2023, and ending on or before December 31, 2026.

Permanent Establishments (PEs) of Non-Resident Persons in the UAE are not eligible for Small Business Relief, except when covered by a Double Taxation Agreement that includes provisions for non-discrimination based on the OECD Model Tax Convention or the UN Model Double Tax Convention.

UAE Sourced Income and Foreign Income

Businesses must consider both UAE sourced income and foreign income when calculating revenue.