UAE Corporate Tax: Benefits for Small and Medium Enterprises (SMEs)

In the ever-evolving landscape of corporate tax compliance, small businesses in the UAE can breathe a sigh of relief with the introduction of the Small Business Relief initiative. Designed to ease the burden of tax calculations and compliance, this relief is a significant development for businesses with modest revenues. Here’s everything you need to know about Small Business Relief and how to benefit from it.

What is Small Business Relief?

Small Business Relief is a provision that allows eligible businesses with revenues of AED 3 million or below to be treated as having no taxable income. This initiative applies to tax periods ending on or before December 31, 2026. By electing for Small Business Relief, a taxable person can benefit from simplified compliance obligations and relief from the duty of calculating and paying corporate tax.

Eligibility Criteria

To qualify for Small Business Relief, a taxable person must meet the following conditions:

- Revenue Threshold: The business must have revenues of AED 3 million or below in the relevant tax period and previous tax periods.

- Type of Entity: Both natural persons and legal entities can elect for this relief, provided they are not:

? - A constituent company of a Multinational Enterprise Group operating in more than one country with a consolidated group revenue of more than AED 3.15 billion.

? - A qualifying Free Zone Person.

How to Claim Small Business Relief

To claim Small Business Relief, an election must be made in the taxable person’s corporate tax return for the relevant tax period. Once elected, the business will not be required to calculate its taxable income or file a full corporate tax return for that period.

Compliance Benefits

Electing for Small Business Relief offers several compliance benefits:

- Simplified Reporting: Businesses are released from the obligation to calculate and report taxable income.

- Transfer Pricing Documentation: Businesses benefiting from the relief are not required to file transfer pricing documentation. This includes the transfer pricing information disclosure form and the maintenance of a master file and local file. However, they must still comply with transfer pricing rules, ensuring transactions with related parties adhere to the arm’s length principle.

Revenue Exceeding AED 3 Million

If a taxable person’s revenue exceeds AED 3 million in any tax period, they will no longer be eligible for Small Business Relief for that period and any future periods. In this context, revenue is the gross income derived from sales of inventory, properties, services, royalties, interest, premiums, dividends, and other amounts before deducting any costs or expenditures.

Carry Forward of Tax Losses and Excess Interest

Tax losses and excess interest expenditure accrued in previous tax periods can be carried forward. This allows businesses to use these losses and interest in future periods where Small Business Relief does not apply. It is important to note that any tax period where Small Business Relief is claimed will count towards the 10-year carry-forward period.

Important Considerations

- Tax Periods: Businesses must ensure their revenue did not exceed AED 3 million in previous tax periods to elect for Small Business Relief in the current period.

- Compliance with Transfer Pricing Rules: Despite the relief from documentation, businesses must ensure that transactions with related parties meet the arm’s length principle.

Conclusion

Small Business Relief is a valuable initiative for businesses in the UAE, offering significant compliance benefits and easing the burden of corporate tax calculations. By understanding the eligibility criteria and the process for claiming this relief, small businesses can optimize their tax compliance and focus on growth and development. If your business meets the criteria, consider electing for Small Business Relief and enjoy the streamlined tax compliance process.

For more information reach out at?[email protected] ?or?+971 52 323 4609