With the introduction of the UAE Corporate Tax regime effective from 1 June 2023, the Federal Tax Authority (FTA) has rolled out Small Business Relief (SBR) to support the nation’s micro and small businesses. This measure is designed to reduce the administrative and financial burden on businesses with modest revenue levels, while maintaining compliance with international tax standards.
Small Business Relief allows eligible UAE-resident businesses to be treated as though they have no taxable income for a given tax period, thereby applying a 0% corporate tax rate. This not only provides a financial benefit but also allows for simplified compliance obligations.
To qualify for Small Business Relief, the following conditions must be met:
I. UAE Resident Business
The entity must be a resident for corporate tax purposes—this includes individuals engaged in business and UAE-incorporated companies.
II. Revenue Threshold
Revenue must not exceed AED 3 million in the current and all previous tax periods starting from 1 June 2023. Once this threshold is breached in any period, the SBR will no longer be available in subsequent years.
III. Non-Qualifying Free Zone Person
Entities operating in Free Zones that qualify for a 0% rate under the “Qualifying Free Zone Person” (QFZP) rules are not eligible for SBR.
IV. Not Part of a Multinational Enterprise (MNE) Group
Companies that are part of an MNE group with consolidated global revenues of AED 3.15 billion or more are excluded.
V. Anti-Abuse Rules Compliance
Any artificial splitting of business operations to remain under the AED 3 million cap will be subject to scrutiny and possible disqualification under the general anti-abuse provisions of the tax law.
Applying for Small Business Relief requires the following steps:
I. Corporate Tax Registration
All businesses, regardless of expected relief, must register with the FTA through the “EmaraTax” (Federal Tax Authority) portal and obtain a Tax Registration Number (TRN).
II. Maintain Proper Financial Records
Businesses must keep records of income, bank statements, invoices, and contracts to substantiate their revenue and ensure compliance with reporting requirements.
III. Elect Small Business Relief in Tax Return
The election must be explicitly made in the “Corporate Tax Return” for each relevant tax period. If a business fails to elect the relief, it cannot be applied retroactively.
IV. File on Time
The “Corporate Tax Return” must be filed within 9 months of the end of the financial year. For example, a company with a 31 December 2024 year-end must file its return by 30 September 2025
I. 0% Corporate Tax Liability
Businesses that qualify are considered to have no taxable income.
II. Simplified Tax Filing
Entities can file a simplified corporate tax return with reduced documentation.
III. Cash Basis Accounting Option
Businesses with revenues under AED 3 million may use cash-basis accounting, which simplifies financial reporting compared to accrual-based methods.
I. Losses and Interest Limitations
Businesses that opt for SBR cannot claim or carry forward tax losses or net interest expenses from that period. Strategic decision-making is required to assess whether to elect SBR or use losses.
II. Transfer Pricing Still Applies
Even under SBR, related-party transactions must comply with arm’s-length principles. However, simplified documentation may apply.
III. Election is Not Automatic
The relief must be elected every tax period. Failure to do so means standard tax rules and rates will apply.
IV. Available for a Limited Period
SBR applies only to tax periods starting on or after 1 June 2023 and ending on or before 31 December 2026.
|
Activity |
Deadline |
|
Corporate Tax Registration |
As soon as possible |
|
First eligible tax period |
1 June 2023 onward |
|
Last eligible tax period |
Ending 31 December 2026 |
|
Tax return filing deadline |
9 months after end of tax period |
|
Election of SBR |
At the time of tax filing return |
The Small Business Relief initiative is a valuable tax planning tool that significantly eases the compliance burden and financial exposure of UAE’s small enterprises. However, it requires careful consideration of eligibility, timing, and long-term tax planning, especially for businesses with potential to scale or that incur significant tax losses.
By staying compliant and making timely elections, eligible businesses can benefit from a zero-tax environment while remaining fully aligned with the UAE’s growing international tax commitments
If you and your business need help navigating the UAE Tax system, contact our lawyer Verena Nosko via email at verena@meyer-reumann.com or call the office directly on +971 4 331 7110 for tailored advice and support.
