Everything You Need to Know About Small Business Relief in the UAE

Small Business Relief is an optional relief available to small businesses in the UAE, who are resident persons for corporate tax purposes. It is provided in order to reduce the compliance requirements and procedures during the initial years of the corporate tax regime.

Here are some FAQs and their answers related to this optional relief available to small businesses in the UAE.

Q1) What is the eligibility criteria for availing small business relief?

Ans – For a business to avail small business relief, it’s revenue for each of the relevant tax periods should not cross AED 3,000,000. If in any tax period, the revenue threshold is exceeded, then small business relief cannot be availed for the subsequent periods even if revenue falls below the threshold limit in the subsequent period.

Q2) How is revenue threshold limit of AED 3,000,000 determined for the purpose of small business relief election?

Ans – Revenue for the purpose of determining threshold limit means gross amount of income received during the relevant tax period. It includes all the income that the business earns including sale of any assets, foreign income, exempt income or any other income of such kind. It is to be noted that the VAT charged on sales should not be included in the calculation of revenue.

Q3) Do businesses have to register for corporate tax if they are choosing to elect for small business relief?

Ans – Yes, businesses will have to register for corporate tax despite choosing to elect for small business relief. Election for this relief can only be made post registration and businesses are still required to meet its compliance obligations related to corporate tax in each tax period.

Q4) How is election for small business relief made and what is the validity of an election once made?

Ans – The election for small business relief is made through the filing of a tax return. It must be made for each tax period in order for the relief to be applied for that relevant tax period. It can be availed only until the tax period ending on or before 31 December 2026. Moreover, businesses must be able to provide evidence to the FTA that the revenue threshold limit for the purpose of this relief is not exceeded during any of the elected periods.

Q5) What are the compliance obligations relating to filing and documenting if a business elects for small business relief?

Ans – If electing for small business relief, businesses need not calculate and pay corporate tax on their income. It is treated as if the business earns no taxable income for the relevant tax period. They will have to file only a simplified tax return. However, they still have to retain all the relevant documents and records to support their corporate tax filings.

Q6) How is small business relief revenue threshold considered for a tax group?

Ans – The revenue threshold for small business relief will apply to tax group as a whole rather than to each member of the tax group. A tax group is treated as a single taxable person and consolidated revenue for the entire group is considered for the purpose of determining the threshold limit.

Q7) Who is not eligible for small business relief?

Ans – Small business relief will not be available in the following cases:

Where the business is a member of a Multinational Enterprise Group (MNE).
Where the business is a qualifying free zone person.
Where a business is artificially separated into more than one entity in order to reduce the revenue of each entity below the threshold limit for small business relief.

Q8) What are the implications of electing small business relief on the following corporate tax rules?

Tax losses:

Businesses elected for small business relief will not be able to accrue, utilize or transfer tax losses during the tax period when the relief is availed. However, unutilized tax losses relating to the period before such election can be utilized in subsequent years when the business stops availing the relief.

General Interest Deduction Limitation Rule:

Businesses do not need to apply the general interest deduction limitation rule during the period in which the relief is adopted.

Transfer pricing documentation:

The rules on transfer pricing documentation do not apply for the tax periods in which small business relief is elected. However, It is to be ensured that the transactions with related parties or connected persons are in consistence with the Arm’s Length Principle.

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