What’s The Eligibility Criteria for Small Business Relief in the UAE?

The United Arab Emirates (UAE) has introduced the Small Business Relief to support small enterprises by reducing their corporate tax obligations.

This initiative allows eligible businesses to be treated as having zero taxable income for a specific tax period. This exempts them from corporate tax for that duration.

Eligibility Criteria for Small Business Relief

Revenue Threshold

The business’s annual revenue should not exceed AED 3 million for the tax period. This limit applies to the current tax period and all previous tax periods ending on or before December 31, 2026.

For instance, if a business’s income surpasses AED 3 million in one year but falls below this threshold in the subsequent year, it remains ineligible for the relief.

Resident Status

The relief is available to resident persons in the UAE, including natural and juridical persons incorporated in the UAE.

This category also encompasses free zone persons and juridical persons incorporated outside the UAE but managed from the UAE.

Election for Relief

Businesses can claim this relief for multiple consecutive tax periods if they meet the guidelines.

However, they must file a notification with the taxation authorities during a specific tax period to be eligible. If the return is filed without opting for the relief, it cannot be claimed later.

Tax Registration Number (TRN)

To be eligible for the relief, businesses must register for Corporate Tax and obtain a TRN. They should also maintain records proving their eligibility, including revenue documentation.

MHR services includes Audit & Assurance, Financial Accounting, Financial & Business Advisory, Taxation including VAT, Corporate Tax & Excise Tax, Company Setup, regulatory & compliance and Management Consultancy.

Ineligibility Criteria

Members of a Multinational Enterprise Group (MNE)

If a business is part of an MNE group with a consolidated group revenue exceeding AED 3.15 billion, it does not qualify for this relief. All MNEs are required to prepare a Country-by-Country Report as per the applicable legislation.

Qualifying Free Zone Persons

Entities that qualify as free zone persons and are subject to a 0% Corporate Tax rate on their qualifying income are not eligible for the Small Business Relief. These entities must meet specific criteria to maintain their status.

Tax Losses and Interest Deductions

Entities benefiting from the Small Business Relief cannot carry forward any tax losses or net interest expenses incurred during the relief period to subsequent tax periods. These restrictions resume after the relief period expires.

General Anti-Abuse Rule (GAAR)

Businesses should be aware of the GAAR provisions. If a business intentionally separates its operations solely to meet the AED 3 million revenue threshold and qualify for the Small Business Relief, the Federal Tax Authority can make compensating adjustments to the UAE CT liability of the relevant taxable person.

FAQs

What is the Small Business Relief in the UAE?

The Small Business Relief allows eligible businesses to be treated as having zero taxable income for a given tax period, effectively exempting them from corporate tax during that period.

What is the revenue threshold for eligibility?

To qualify for the Small Business Relief, your business’s annual revenue must not exceed AED 3 million for the relevant tax period. This threshold applies to all tax periods ending on or before December 31, 2026.

Are there any exclusions based on business type?

Yes, certain businesses are excluded from this relief:

Financial Institutions: Businesses classified as financial institutions are not eligible.

Holding Companies: Holding companies are also excluded from the Small Business Relief.

Can a business with multiple activities qualify?

Yes, a business engaged in multiple activities can qualify for the Small Business Relief, provided its total annual revenue does not exceed the AED 3 million threshold.

Is there a requirement to opt into the relief?

Yes, businesses must elect to apply the Small Business Relief within their tax returns for the relevant tax period.

Are there any restrictions on tax losses or interest expenditure?

Claiming the Small Business Relief may restrict certain reliefs and deductions for the relevant tax period. Businesses should assess whether claiming the relief is advantageous, especially if they have tax losses or interest expenditures.

What is the duration of the Small Business Relief?

The Small Business Relief is available for tax periods starting on or after June 1, 2023, and ending before December 31, 2026.

Conclusion

The Small Business Relief in the UAE offers significant tax advantages to eligible small businesses, creating a conducive environment for their growth. By understanding the eligibility criteria, businesses can leverage this relief to improve their financial health.