How Small Business Relief in the UAE Affects Eligibility for Tax Savings and Support is an essential topic for entrepreneurs and SMEs in the UAE. With the introduction of the Corporate Tax Regime, businesses will need to adopt a clear picture of where they fit in and what reliefs they are eligible for.
Small Business Relief is one of the most positive measures brought by the Corporate Tax Law to reduce the tax and compliance burden for eligible businesses.
At Recordac Accounting and Consulting Services in Dubai, our experts walk you through the eligibility process and ensure that you get the most out of it. If you would like to claim your tax relief and protect your business, book your consultation today.
What Is Small Business Relief?
Small Business Relief is a tax measure designed to help smaller businesses navigate the transition to the new tax landscape. It allows eligible companies to be considered as having zero taxable income for the year concerned, resulting in no corporate tax being payable.
The main purpose of this relief is twofold:
- Tax relief: No corporate tax is payable if revenue remains within the set threshold.
- Administrative relief: Simplified tax return filing and record-keeping obligations.
This combination provides small businesses with much-needed breathing space, particularly in the early implementation days of the UAE tax regime.
Small Business Relief UAE Eligibility Explained
Eligibility depends on specific conditions set by the Federal Tax Authority (FTA). Businesses must meet all of the following to qualify:
- Revenue Threshold: Annual revenue must be AED 3 million or less for the current and all previous tax periods.
- Resident Person Requirement: The business must be a UAE resident for corporate tax purposes, either as a natural person conducting business or a juridical person (such as an LLC).
- Time Restriction: Relief is available only for tax periods starting on or after 1 June 2023 and ending on or before 31 December 2026.
Importantly, profit levels do not affect eligibility. Even if a business makes high profits, as long as total revenue does not exceed AED 3 million, it may qualify.
Who Cannot Claim Small Business Relief?
While the scheme is open to most small businesses, there are some essential exclusions:
- Multinational Enterprise (MNE) Members: Any business entity that is part of a group with combined revenues exceeding AED 3.15 billion does not qualify for this Credit.
- Qualifying Free Zone Persons: These individuals are exempt from paying tax, as they already qualify for a 0% tax rate on their qualifying income.
- Artificial Separation Cases: Businesses that split into multiple entities just to stay under the AED 3 million limit risk penalties if the FTA identifies this as tax avoidance.
How Small Business Relief UAE Eligibility Impacts Tax Savings
For eligible companies, the savings can be substantial. Without relief, companies would pay:
- 0% tax on the first AED 375,000 of taxable income
- 9% tax on taxable income in excess of AED 375,000.
By choosing Small Business Relief, the business gets treated as having no taxable income whatsoever. This means zero corporate tax liability, regardless of profit margins. For example, a company with AED 2.8 million in revenue and AED 1.2 million in profit can save millions of dirhams in corporate tax through this waiver.
Compliance and Support Benefits
More than financial benefits, Small Business Relief UAE Eligibility also affects compliance obligations:
- Eligible businesses can submit a simplified tax return.
- Eliminate the necessity to prepare specific CITABLE income and transfer pricing documentation.
- It is simpler to prepare financial statements using the cash basis of accounting, which is particularly useful for smaller companies.
Decreased administrative costs allow owners to focus more time on developing the business, rather than being concerned about compliance issues.
Limitations of Small Business Relief
Please note that a choice for relief carries certain constraints:
- Businesses cannot claim tax losses for that period.
- They cannot carry forward or use excess interest expenditure.
- Other corporate tax reliefs, like group restructuring or intra-group transfers, also do not apply.
This is why it is so crucial for business owners to carefully consider their options and seek expert advice when making an election.
Final Thoughts
How Small Business Relief UAE Eligibility Impacts Tax Savings and Support demonstrates the significant impact this measure can have on smaller enterprises. By eliminating financial and regulatory barriers, it creates a conducive environment for SMEs to grow and prosper in the thriving UAE market.
However, relief is not available to all, and the election for relief has consequences for other parts of the tax law. That’s why your goal should be to get professional advice.
At Recordac Accounting and Consulting Services in Dubai, we help businesses qualify to operate, optimize tax systems, and remain 100% compliant. To ensure you secure a slight business relief and maximize what you can get out of your tax relief, contact our team today.
