In recent times, small businesses in the United Arab Emirates (UAE) have faced numerous challenges, especially in corporate taxation. However, a glimmer of hope emerges in the form of “Small Business Relief” – a potential lifeline for businesses with revenues of AED 3 million or below. Let’s delve into the intricacies of this relief measure and how it can benefit eligible entities. This article is the third part of a comprehensive series on corporate tax insights. To catch up on the previous article discussing UAE Corporate Tax: Natural Persons, Juridical Persons, and Exempt Entities Insights, click here.
Understanding Small Business Relief
Small Business Relief offers a respite to qualifying businesses by exempting them from the arduous task of calculating and paying corporate tax. It simplifies compliance obligations, easing the burden on small enterprises. To be eligible, a taxable entity must have revenues of AED 3 million or less in the relevant tax period ending on or before December 31, 2026.
Who Qualifies for Small Business Relief?
Who Qualifies for Small Business Relief?
For tax periods ending on or before December 31, 2026, UAE resident persons with revenues not exceeding AED 3 million in both the current and previous tax periods can claim Small Business Relief. This includes natural persons and legal entities that do not fall under certain categories, such as multinational enterprise groups or qualifying free zone persons.
Deciphering Revenue
Deciphering Revenue
Revenue encompasses the total income derived in a tax period from various sources such as sales, services, royalties, and dividends, before deducting any costs or expenditures. It is crucial to distinguish gross income from sales or services without factoring in the cost of goods sold or services.
Calculating Corporate Tax Liability
Calculating Corporate Tax Liability
This Relief absolves eligible entities from corporate tax obligations. However, for those ineligible or opting out, the corporate tax liability is computed based on taxable income. For instance, if a business earns AED 1 million in taxable income, the corporate tax liability could amount to AED 56,250, subject to a tax rate of 9%.
Electing for Small Business Relief
Electing for Small Business Relief
Eligible taxable persons can elect for The Relief through their corporate tax returns, streamlining the process for those in need of this assistance.
Exclusions and Future Considerations
Exclusions and Future Considerations
Once a business’s revenue surpasses AED 3 million in any tax period, it forfeits eligibility to be relieved in subsequent periods. It’s crucial for businesses to keep track of their revenue to determine ongoing eligibility.
Maximizing Relief Benefits
Maximizing Relief Benefits
Small Business Relief extends beyond tax exemption. Businesses can also enjoy compliance reliefs, such as exemption from transfer pricing documentation and the non-requirement to calculate taxable income, provided they meet the arm’s length principle in transactions with related parties.
Carrying Forward Losses and Expenditures
Carrying Forward Losses and Expenditures
Tax losses and excess interest expenditures incurred in previous tax periods can be carried forward for future use, ensuring that businesses can still leverage these benefits in periods where tax Relief is not applicable.
Continual Eligibility
Continual Eligibility
Businesses can elect for Small Business Relief in the current tax period, even if they hadn’t done so in prior periods, as long as they meet all relevant conditions.
Small Business Relief stands as a beacon of hope for small enterprises in the UAE, offering much-needed respite from the complexities of corporate taxation. By understanding its nuances and eligibility criteria, businesses can navigate the landscape more effectively, ensuring sustained growth and compliance in the ever-evolving business environment.
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