With the introduction of the Corporate Tax (CT) regime in the UAE, effective from 1 June 2023, a significant change has come into effect in the financial landscape for businesses operating in the region. A critical feature of this new tax system is the Small Business Relief, designed to support the growth and sustainability of small-scale enterprises. This guide delves into what the CT regime entails for small businesses, emphasizing the benefits, eligibility criteria, how to apply for relief, and additional vital information to ensure comprehensive understanding and compliance.

Understanding the UAE Corporate Tax and Small Business Relief

The UAE Corporate Tax system imposes taxes on the net profits of businesses. However, it provides a lifeline for smaller businesses through the Small Business Relief, which exempts eligible small enterprises from corporate tax, subject to certain conditions.

Key Advantages of Small Business Relief:

• Administrative Simplicity: The relief simplifies tax filings and financial record-keeping for qualifying businesses by easing the process of calculating taxable income. Eligible businesses can also opt for cash basis accounting, further simplifying financial management.
• Tax Exemption: Qualified businesses benefit from a zero corporate tax rate on their income for the tax period, enhancing their cash flow and financial stability.

Eligibility and Application Process:

• The relief commences from the tax period starting on 1 June 2023 and will apply until 31 December 2026, providing a window of opportunity for eligible businesses to benefit.
• The relief is designed for resident taxable entities—both individuals and Juridical person—that generate revenue of AED 3 million or less for the relevant tax period and all preceding tax periods ending on or before 31 December 2026.
• Eligible entities include UAE-incorporated companies , UAE-managed foreign companies, and individuals conducting business within the UAE.
• To avail of this relief, businesses must elect for it by notifying the tax authorities within their tax return for the relevant period.

Exclusions:

• Businesses that are part of multinational enterprise groups with consolidated revenue exceeding AED 3.15 billion, and qualifying free zone persons benefiting from a 0% tax rate on qualifying income, are not eligible for this relief.

How Small Business Relief Works

This relief effectively considers qualifying businesses as having no taxable income for the period, exempting them from corporate tax. This exemption relies on meeting specified revenue thresholds and other criteria, exempting eligible businesses from adhering to certain corporate tax rules, like tax loss applications or interest deduction limitations.

Exclusion from Certain Tax Relief Measures

Businesses choosing to avail themselves of Small Business Relief find themselves ineligible for applying specific Corporate Tax reliefs and rules. Notably, they are barred from utilizing Tax Loss Rules or the General Interest Deduction Limitation Rule during the Tax Period. This exclusion stems from the fact that these reliefs directly pertain to the computation of Taxable Income, a factor effectively nullified for eligible entities under Small Business Relief.

Impact and Considerations

The Small Business Relief presents substantial benefits, but businesses must evaluate their specific financial situations before opting in. Decisions should be influenced by factors such as taxable profits, interest expenses, and the potential use of other tax reliefs.

Need Expert Advice? Reach Out to Mavish Global Advisors

The intricacies of navigating the UAE’s CT regime and optimizing the benefits of Small Business Relief can be daunting. Mavish Global Advisors stands ready to assist. Our team offers bespoke accounting and auditing services, ensuring your business complies with tax obligations while maximizing all available tax reliefs. Connect with us to learn how we can aid in your business’s growth and success in the UAE’s dynamic financial environment. Please inbox your requirement.