Easing UAE corporate tax with the Small Business Relief scheme

With the aim to support and strengthen its small business sector, the UAE government has launched the Small Business Relief (SBR). The scheme support start-ups and other small businesses by reducing their corporate tax burden and compliance. Girish Chand, Senior Partner at MCA, shares details on the scheme and its benefits.

Small Business Relief (SBR) is a crucial government initiative aimed at supporting small businesses by simplifying their tax compliance processes and offering potential reductions in their tax liabilities.

Introduced in the summer of 2023, the Small Business Relief (part of the UAE Corporate Tax Law) eases the corporate tax strain for companies boasting a gross business income of up to Dh3 million.

To qualify for Small Business Relief, the following criteria must be met:
• The Taxable Person must be a Resident Taxable Person, whether a Natural or Juridical Person.
• The Revenue of the Taxable Person for the Tax Period should be below or equal to Dh3,000,000.
• To claim the SBR relief, the revenue for both the relevant Tax Period and the previous Tax Periods must be Dh3 million or below for each respective Tax period.

Small Business Relief is not available to Non-Resident Taxable Persons (except in certain cases), Qualifying Free Zone Persons, and Entities that are part of Multinational Enterprise (MNE) groups with a revenue of AED 3.15 billion.

Eligibility period

The Small Business Relief can be claimed for financial years falling between 1 June 2023 and 31 December 2026. The duration of relief that can be claimed depends on the financial years being followed and can be either 2 or 3 years.

Eligible Revenue is calculated by components, which are included in the calculation of eligible revenue. These include income from all sales made by the business, income from the sale of assets and barter sales and exempt income, such as dividends.

Benefits of SBR

Eligible Taxable Persons have the option to elect for Small Business Relief in their Tax Return. Once this election has been made, it cannot be amended. Upon election, they will enjoy the benefits such as completion of a simplified Tax Return, and no requirement to pay any Corporate Tax on income earned.

SMEs also get an exemption from maintaining Transfer Pricing documentation related to Transfer Pricing disclosure and Master/Local file maintenance.

Evaluation to be done prior to claiming SBR

While the Small Business Relief offers significant advantages, it is important to be aware of its limitations. Tax Loss Relief (i.e. carry forward of tax losses) and carry forward of net interest expenditure are not available to those claiming SBR. It also should be taken into consideration that there is no artificial separation of business. In such cases General Anti-Avoidance Rules may apply and the Tax Authority could disregard the benefits claimed under SBR.

Business should properly evaluate their profitability and eligibility prior to opting for the SBR.