UAE Introduces Corporate Tax Relief for Small Businesses

Federal Tax Authority’s Guide Sets Out Provisions for Entities with Earnings up to Dh3 Million

The United Arab Emirates, aiming to strengthen its small business sector, has launched the Small Business Relief (SBR) scheme. This move seeks to ease the corporate tax strain for companies boasting a gross business income of up to Dh3 million. Exclusively crafted for resident taxable entities, be they individual or corporate, this initiative has a deadline of 31 December 2026.

Last week, the Federal Tax Authority (FTA) elaborated on this development, publishing a thorough Corporate Tax Guide concerning the Small Business Relief. This guide highlights the complexities of the UAE’s Corporate Tax Law, focusing particularly on smaller businesses.

Article 21 of the law clarifies that entities with a gross income below Dh3 million – a benchmark set in Ministerial Decision No. 73 of 2023 dated 3 April 2023 – can operate as though they’ve generated no taxable income. Although such entities will be exempt from measures related to tax losses, relief, deductions, and transfer pricing documentation, they still need to register for corporate tax, comply with transfer pricing rules, and submit a simplified tax return.

However, not all businesses will be covered by this provision. Entities recognised as Qualified Free Zone Persons (QFZP) or those part of a Multinational Enterprise (MNE) group are excluded. Specifically, MNEs are large firms operating across multiple countries with a group revenue exceeding Dh3.15 billion. They are obliged to produce a Country-by-Country Report in line with the UAE’s Cabinet Resolution No. 44 of 2020.

Exploring the law and the FTA’s guide further, the SBR scheme is moulded for resident entities. This includes firms based outside the UAE but operated from within, individuals involved in UAE businesses, and several others highlighted by Cabinet decisions. Importantly, the relief isn’t accessible for non-residents, with few exceptions.

An essential aspect is the inclusion of all business income, both from within the UAE and abroad. Moreover, revenues from asset sales are factored into the threshold assessment. Whether income is from exempt or taxable sources, all are considered.

For individual residents, the threshold for corporate tax registration stands at an income of Dh1 million derived from business ventures. Should their earnings approach Dh3 million and they meet SBR conditions, they can access the relief. Earnings from salaries, personal investments, and property aren’t included in these assessments.

Opting for SBR is discretionary at the time of filing returns. Businesses choosing this path aren’t required to determine taxable income or submit detailed tax returns. Notably, they won’t face corporate tax duties for fiscal years ending on or before 31 December 2026.

When selecting SBR, the emphasis is on gross revenue, ignoring factors like expenses or profits. Tax losses from earlier periods can’t be used to balance current earnings but can be transferred to subsequent tax periods if SBR isn’t opted for.

Tax groups can also adopt SBR if their combined income doesn’t exceed the Dh3 million benchmark over current and previous tax periods. In this scenario, the entire group’s revenue is assessed, rather than the incomes of individual members.

Documentation, ranging from bank statements to business communications, should be stored for seven years following the pertinent tax period. Nevertheless, electronic copies are permissible as replacements for original records.

Businesses are encouraged to evaluate their revenue scenario. Those meeting the SBR guidelines could see considerable tax advantages.

For more information, contact Alpadis Group.