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Small Business Relief – Corporate Tax

Understanding Small Business Relief: General Overview

Small Business Relief (SBR) is a provision that eases the implementation of Corporate Tax for small businesses in the UAE by reducing their compliance obligations. It relieves them of the burden of calculating and paying Corporate Tax.

Any Resident Taxable person with revenue below or equal to AED 3,000,000 in a relevant tax period and all prior periods before 31st December 2026, can opt to have no taxable income for that period, and will not be obliged to calculate its Taxable Income or complete a full Tax Return.

SBR provides eligible taxable persons with Administrative and Tax relief. They are exempted from calculating their taxable income and can benefit from simplified tax return filing, record-keeping requirements, and cash basis accounting for financial statements. Additionally, they will not be required to pay any corporate tax on their income for the tax period. To benefit from SBR, eligible taxable persons can opt for it in their tax return.

Who Does Not Meet the Criteria for Small Business Relief?

  • Where the business is a member of a Multinational Enterprise Group
  • Where the business is a Qualifying Free Zone Person

Eligibility Criteria For Small Business Relief

To qualify for SBR, a taxable person’s revenue must not exceed AED 3,000,000 for the relevant and previous tax periods. If the revenue exceeds the limit, the taxable person cannot avail SBR even if it falls below the limit in subsequent tax periods.

What Is Revenue?

Revenue, as defined by the Law, is the total income a business generates, including all sales and other gross income.

Revenue should be determined using the arm’s length principle and should consider all income from a juridical person’s Business Activities and certain defined Business Activities of a natural person.

Note :

SBR cannot be availed by those individuals who deliberately divide their business into multiple entities to ensure that the revenue of each entity remains below the threshold for SBR. If the Federal Tax Authority (FTA) determines that such artificial separation has occurred, the individual will be required to repay any unpaid Corporate Tax along with any applicable penalties.

Impact of Small Business Relief on Tax Losses

If a Resident Person eligible for Small Business Relief elects for it in a Tax Period, they will not be able to utilize the provisions of the Corporate Tax Law related to Tax Losses in that period. This means that they cannot accrue, use, or transfer any Tax Losses.

However, if the Resident Person has unutilized Tax Losses brought forward from previous Tax Periods at the beginning of the Tax Period in which they elect for Small Business Relief, such Tax Losses will continue to be carried forward and can be used in the next Tax Period in which the Resident Person has Taxable Income and has not elected for Small Business Relief, provided they meet the conditions of carrying forward and utilizing available Tax Losses.

General Interest Deduction Limitation Rule

If a Resident Person who is eligible for SBR chooses to elect it for a Tax Period, they will not be subject to the General Interest Deduction Limitation Rule during that period. This implies that they will not be able to accumulate or use any Net Interest Expenditure in that Tax Period, nor carry it forward to any subsequent Tax Periods.

However, if the Resident Person has any Net Interest Expenditure incurred in previous Tax Periods where Small Business Relief was not elected, at the start of the Tax Period in which they select Small Business Relief, such Net Interest Expenditure will be carried forward and can be used in the next Tax Period in which they have Taxable Income and have not elected for SBR.

Exempt Income Exclusions Under Small Business Relief

There are certain types of income that do not fall under the taxable category. These types of income are called Exempt Income, and businesses are required to exclude them while calculating their taxable income. However, if a business has opted for SBR, the rules on Exempt Income would not apply to them. This means that even if the income earned is not taxable, it must be included while calculating the revenue for SBR Purposes.

Other Relief Exclusions Under Small Business Relief

Businesses can benefit from tax relief when transferring assets or liabilities within a Qualifying Group or undergoing certain restructuring transactions. If the conditions are met, both parties can record the transaction as occurring at net book value, with no gain or loss to either party for Corporate Tax purposes.

However, these reliefs are unavailable to businesses that elect for SBR. Small Business Relief treats businesses as if they had no taxable income, meaning that the transaction amount has no impact on their tax position.

Exemption From Deductions

SBR is based on Revenue alone, and deductions do not apply to Businesses that have elected for it. Thus, any expenditure will not impact a Business that has opted for Small Business Relief.

Transfer Pricing Compliance and Relief For Small Businesses

Transfer pricing is a method to determine prices for taxable persons during related-party transactions, preventing tax base erosion and profit shifting.

Businesses must submit transfer pricing disclosures to the FTA, either with their tax returns or within 30 days of an FTA request.

Small businesses can opt for relief during a tax period, exempt from transfer pricing documentation requirements. However, they must comply with the Arm’s Length Principle, and the FTA can still review their tax affairs and relatedparty transactions.

Small Business Relief and Tax Group Formation

Companies under common ownership can form a Tax Group if they qualify for Small Business Relief. This reduces compliance burdens by consolidating accounts and eliminates intra-group transactions.

A revenue threshold of AED 3,000,000 applies to the Tax Group as a whole, not each member.

Small Business Relief and Corporate Tax Responsibilities

  • Eligible Taxable Persons must register for Corporate Tax.
  • The election for Small Business Relief must be made in each Taxable Period.
  • Even after claiming relief, Taxable Persons must fulfill their Corporate Tax compliance obligations, including filing a simplified Tax Return and maintaining relevant documents and records.
  • Eligibility for relief does not exempt businesses from filing Tax Returns, but it simplifies the process and reduces the required information and time.
  • Under the Corporate Tax Law, all businesses must maintain records supporting the information provided in a Tax Return or any other document submitted to the FTA.
  • All Businesses must keep records and documents for seven years following the end of the Tax Period to which they relate. This requirement applies to the Tax Period to which the documents relate, and not the Tax Period in which they were created.

How BAM Can Help!!!

  • BAM can conduct a thorough assessment of the company’s financial data and business structure to determine eligibility for Small Business Relief.
  • BAM can assist companies in preparing and filing their Tax Returns, ensuring that all necessary documentation is accurate and complete.
  • BAM can provide ongoing support to ensure that companies remain compliant with Corporate Tax obligations even after claiming Small Business Relief. This includes assistance with maintaining records, filing requirements, and any changes in tax laws or regulations.
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