UAE’s Corporate Tax Small Businesses Relief

This article is written by Marina Zhirnova, Managing Partner at UPPERCASE Accounting.

The UAE has recently introduced a corporate tax relief initiative aimed at supporting small businesses and stimulating a more dynamic economic environment. This measure is designed to soften the financial burden on small enterprises, enabling them to thrive and contribute to the UAE’s economic growth.

Understanding Small Business Relief

The Small Business Relief initiative is specifically targeted at Resident Persons, which include both natural and juridical persons operating within the UAE. The primary goal is to provide financial rest to businesses with limited revenue, ensuring they can sustain operations and continue contributing to the economy without being overburdened by tax obligations.

Eligibility Criteria

To qualify for Small Business Relief, the taxable entity must satisfy the criteria outlined in Ministerial Decision No. 73 of 2023 on Small Business Relief

• Revenue Threshold: The business's revenue must be equal to or less than AED 3,000,000 in both the current tax period and all previous tax periods.

• Election for Relief: Businesses must elect for the relief for each tax period. This means that the relief is not automatically applied; the business must actively choose to benefit from it each time.

What Does the Relief Entail?

Under the Small Business Relief initiative, eligible businesses are treated as not having derived any taxable income for the relevant tax period. This means that they will not be liable to pay corporate tax for that period. However, there are some important points to consider:

• Businesses availing of the Small Business Relief will not be eligible for other exemptions, reliefs, or deductions. This is a key point for businesses to consider when planning their tax strategies.

• While businesses benefiting from the relief are exempt from the requirement to submit transfer pricing documentation, they must still comply with the arm’s length principle. This principle ensures that transactions between related parties are conducted as if they were between independent entities.

Exclusions from Relief

Not all businesses can elect for Small Business Relief. Two notable exclusions are:

• Qualifying Free Zone Persons: Businesses operating within the UAE’s free zones, which typically benefit from other tax incentives, are not eligible for Small Business Relief.

• Multinational Group Members: Businesses that are part of a multinational group with consolidated group revenue exceeding AED 3.15 billion are also excluded from this relief. This exclusion ensures that the relief targets genuinely small businesses rather than large multinational corporations that may not require such support.

The Logic Behind the Relief

The rationale for the Small Business Relief initiative is rooted in the UAE's commitment to fostering a competitive and inclusive economic environment. By easing the tax burden on small businesses, the government aims to:

• Promote Economic Growth: Small businesses are often seen as the backbone of the economy. Supporting their growth and sustainability can lead to increased economic activity, job creation, and innovation.

• Encourage Compliance: Simplifying tax obligations and providing clear, accessible relief measures can improve overall tax compliance. When businesses find the tax system manageable and fair, they are more likely to adhere to regulations.

• Attract and Retain Talent: A supportive business environment can attract new entrepreneurs and retain existing businesses, contributing to a diverse economic landscape.

Conclusion

The UAE’s Small Business Relief initiative is a strategic move to support the nation’s small businesses, ensuring they remain a vital part of the economy. By providing targeted tax relief, the government not only softens financial pressures but also fosters a more inclusive and competitive business environment. Businesses that qualify for this relief should carefully consider the eligibility criteria and implications to fully leverage the benefits and contribute to their sustained growth and success.