Small business relief under UAE Corporate Tax

The United Arab Emirates introduced corporate tax in June 2023.  A corporate tax is a levy on the net profits of businesses operating in a specific jurisdiction. Small business relief is one of the main reliefs offered under this system. This Small business relief regime (SBRR) exempts eligible resident persons with revenue less than or equal to AED 3,000,000 in a relevant tax period. This article discusses the Small business relief under UAE Corporate tax, eligibility requirements, compliance, etc.

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What is Small Business Relief in UAE?

The Small Business Relief program is a tax exemption offered by the UAE government to qualifying small businesses.  Under SBR, eligible businesses are treated as having no taxable income for a specific tax period, effectively exempting them from Corporate tax payment on their profits during that period.  This relief allows small businesses to focus their resources on core operations and expansion.

Eligibility Criteria for Small Business Relief Regime (SBRR)

To qualify for Small Business relief, a business must meet the following criteria as outlined by the UAE Ministry of Finance:

• Resident Taxpayer Status: The business must be a resident person in the UAE. This category encompasses both businesses (juridical persons) and individuals carrying on business activities within the UAE.

• Revenue Threshold: The business's revenue for the relevant tax period and all preceding tax periods ending on or before December 31, 2026, must not exceed AED 3 million. This cumulative assessment ensures that businesses consistently operating within the threshold benefit from the relief.

• Business Type Exclusion: The business cannot be classified as a financial institution or a holding company. These entities are subject to separate CT regulations.

Who is ineligible for Small Business Relief?

While Small Business relief regime (SBRR) offers a broad scope of relief, there are certain categories of businesses that are ineligible:

• Multinational Enterprise Groups (MNEs): Companies that are part of an MNE with a total consolidated group revenue exceeding AED 3.15 billion are not eligible for SBR. The high revenue threshold associated with MNEs suggests they possess a greater capacity to manage the CT burden.

• Qualifying Free Zone Persons: Businesses operating within designated Free Zones and enjoying a 0% CT rate on their Qualifying Income are already exempt from CT and, therefore, ineligible for SBR. However, it's crucial to maintain compliance with the specific requirements to retain their Qualifying Free Zone Person status.

Small Business Relief - UAE Compliance Requirements

Claiming Small Business relief simplifies compliance requirements for eligible businesses. Here are the key points to remember:

• Election for SBR: Businesses must elect for SBRR within the tax return for the respective tax period. This notification formally informs the tax authorities of your intention to claim the relief.

• Record-Keeping: While SBR offers simplified record-keeping, proper financial records are essential for business management and potential future tax audits.

• Retention Period: The UAE Ministry of Finance does not specify a minimum retention period for financial records under SBR. However, it's generally recommended that records be retained for at least five years, aligning with standard best practices and potential audit requirements.

Benefits of Small Business Relief

The Small Business Relief program offers a compelling set of advantages for qualifying small businesses in the UAE:

• Reduced Tax Liability: The most significant benefit is a complete exemption from Corporate Tax (CT) on profits earned during the tax period for which SBR is claimed. This translates to immediate financial savings that can be reinvested into the business for growth, operational improvements, or employee benefits.

• Simplified Compliance: SBR streamlines the tax filing process for eligible businesses. They are not required to calculate taxable income, reducing the complexity of tax return preparation. Additionally, simplified record-keeping requirements ease the administrative burden associated with tax compliance.

• Enhanced Cash Flow: By eliminating the CT obligation for the relevant tax period, SBR frees up valuable cash flow businesses can use for ongoing expenses, debt repayment, or strategic investments. This improved cash flow position fosters financial flexibility and supports business growth initiatives.

• Administrative Cost Savings: The simplified compliance requirements associated with SBR reduce business administrative costs. This includes less time and resources for tax calculations, record-keeping, and filing procedures. These cost savings can be redirected towards other business priorities.

Conclusion

The Small Business Relief Regime (SBRR) in the UAE offers a valuable tax exemption for qualifying small businesses. It can significantly reduce the financial burden associated with Corporate registration compliance, allowing businesses to focus on growth and development. Understanding the eligibility criteria, implications on other CT rules, and compliance requirements is crucial for businesses to make informed decisions about claiming Small Business relief. 

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