Tax Relief and Simplified Filing Options Available for Small Businesses in UAE Corporate Tax

The UAE government has introduced a special privilege known as Small Business Relief (SBR) to assist small businesses in the country in implementing UAE corporate tax regulations. This relief is exclusively accessible to resident taxable individuals, both natural and juridical, whose gross business income does not exceed Dh3 million in the relevant tax period and in any preceding tax periods that conclude on or before December 31, 2026. 

Recently, the Federal Tax Authority (FTA) issued a comprehensive guide titled Corporate Tax Guide on Small Business Relief (CTGSBR1), providing enhanced clarity on how the UAE Corporate Tax Law applies to small businesses.

In accordance with Article 21 of the law, if a resident taxable person’s gross income remains below a threshold established by the Minister (Dh3 million, as stipulated in Ministerial Decision No. 73 of 2023 issued on April 03, 2023), both in the current and any preceding tax periods, that taxable person has the option to choose not to consider any taxable income. 

Consequently, the regulations pertaining to tax losses, tax relief, excused income, determinations, interest restrictions, and transfer pricing documentation will not apply to such taxable persons. However, these individuals are still required to register for UAE corporate tax, adhere to the transfer pricing rules for determining the arm’s length price, and submit a simplified tax return.

This option is not extended to the Qualified Free Zone Person (QFZP) and individuals who are part of a Multinational Enterprise (MNE) group. A QFZP is a legal entity registered within a free zone that satisfies all six associated conditions. MNEs, on the other hand, are conglomerates of companies operating in multiple countries, with a total consolidated group revenue exceeding Dh3.15 billion, necessitating the preparation of a Country-by-Country Report (CbCR) in compliance with the UAE’s CbCR Cabinet Resolution No. 44 of 2020.

As stipulated in the law and elucidated in the CTGSBR1, the Small Business Relief (SBR) is exclusively applicable to resident persons, which encompasses the following categories – 

  1. Juridical Persons Incorporated in the UAE – This category includes all legal entities, including those operating within free zones, that are formally established and registered within the United Arab Emirates.
  1. Juridical Persons Established Outside the UAE but Controlled and Managed from the UAE – Any legal entity established beyond the borders of the UAE but effectively controlled and managed from within the UAE falls under this category.
  1. Natural Persons Conducting Business or Business Activities in the UAE – Individuals engaged in business or commercial activities within the UAE are considered resident persons eligible for the SBR.
  1. Any Other Persons Designated by Cabinet Decision – The Cabinet reserves the right to designate additional categories of persons who may qualify for the Small Business Relief.

SBR is not applicable to nonresident persons, with a notable exception for the permanent establishment of nonresident entities within the UAE. This exception ensures that entities with a significant and lasting presence in the UAE are not excluded from potential relief under specific circumstances.

The gross amount of Dh3 million encompasses the total revenue derived from all business activities conducted by the resident person. This figure includes income generated both within and outside the UAE. Additionally, if the resident person generates any income through the sale of assets, the entire proceeds from these sales are taken into account when calculating the aforementioned threshold. Whether the income originates from sources that are exempt from taxation or taxable in nature, all forms of income are considered in this calculation.

In instances of fragmentation, the Federal Tax Authority (FTA) conducts a comprehensive assessment, taking into account the unique circumstances, financial aspects, economic factors, and organizational ties. This assessment helps determine the commercial logic and genuine separation of these entities.

Individuals who are natural resident persons are exempt from UAE corporate tax liability. Furthermore, they are not required to register for UAE corporate tax if their annual income from business and business activities remains within Dh1 million within the Gregorian calendar year.

In cases where their income from business and business activities falls within the range of Dh1 million to Dh3 million, they have the option to choose Small Business Relief (SBR) if they fulfill the necessary SBR requirements.

It’s important to note that while determining the thresholds of Dh1 million and Dh3 million, income derived from wages, personal investments, and real estate investments is not taken into consideration. These sources of revenue are banned from the calculation.

The Small Business Relief (SBR) is an elective benefit accessible to qualified resident taxable individuals during their tax return submission. Even if they choose the SBR, they must still complete the registration process and submit a simplified tax return. However, they are not obligated to compute their taxable income or submit a full tax return. Those who opt for the SBR are exempt from paying UAE corporate tax for financial years finishing on or prior to December 31, 2026.

For eligible individuals, the determination to choose the SBR is solely based on gross earnings, irrespective of their expenses and profits. Tax losses and interest expenses from previous periods cannot offset the profits of the chosen tax period. However, these losses and expenses can be carried forward for utilization against future tax term returns when the citizen individual opts out of the SBR. Tax losses and interest expenses incurred during the opted tax period cannot be accumulated for adjustment against future profits, and any losses from the chosen period cannot be assigned to another entity.

During the opted tax period, the taxable individual cannot apply tax reliefs for transfers within a qualifying group or business restructuring transactions. Consequently, these transactions are recorded at their market value rather than their book value.

A tax group is also eligible to choose the Small Business Relief (SBR) if the group’s gross revenue remains at or below Dh3 million for both the current and preceding tax periods. In the case of a tax group, the revenue threshold for SBR applies to the entire group as a whole, rather than to each individual member of the group.

Individuals who have opted for the SBR are required to maintain records for a duration of seven years from the conclusion of the relevant tax period to which the documents pertain. These records encompass a range of documentation, including bank statements, sales ledgers, invoices, daily earnings records (such as till rolls), order records, delivery notes, and other pertinent business correspondence. While retaining the original records is not obligatory, it is acceptable to keep photocopies or scanned copies in a legible format for record-keeping purposes.

Businesses should evaluate their gross revenue and, if they qualify and meet the criteria, consider opting for Small Business Relief (SBR) to access tax relief benefits.

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