In the dynamic landscape of corporate taxation, fostering an environment conducive to the growth of small businesses is crucial for economic vitality. Recognizing this, the United Arab Emirates (UAE) has introduced Small Business Relief provisions under Article 21 of the UAE Corporate Tax Law. Let’s delve into the key components of this initiative aimed at alleviating the tax burden on small and micro-enterprises.
A. Eligibility Criteria
To avail themselves of Small Business Relief, entities must meet specific eligibility criteria:
- UAE Tax Residency: The entity must be a resident taxable person in the UAE.
- Revenue Threshold: The gross revenue for the relevant and preceding tax periods should not exceed AED 3,000,000. It’s worth noting that this threshold came into effect on June 1, 2023, and remains applicable until December 31, 2026.
- Accounting Standards: Revenue calculation must adhere to UAE-accepted accounting standards, primarily IFRS and IFRS for SMEs.
- Election: Entities must elect for Small Business Relief in their tax returns for each tax period.
- Tax Groups: Tax groups can opt for relief if their consolidated revenue falls within the specified threshold.
B. Ineligibility Criteria
Certain entities are ineligible for Small Business Relief, including:
- Constituent Companies of Multinational Enterprises (MNEs): Entities required to prepare a Country-by-Country Report under UAE’s legislation.
- Qualifying Free Zone Persons: Individuals falling under this category are not eligible for relief.
C. Exemptions and Provisions
To streamline compliance and prevent double taxation benefits, certain provisions under the CT Law do not apply to entities opting for Small Business Relief. These include exemptions, reliefs, deductions, tax loss relief, and transfer pricing documentation.
D. Anti-Abuse Rule
To curb artificial business separation aimed at surpassing the revenue threshold, an anti-abuse rule is in place. If entities are found to have divided their activities to gain undue tax advantages, such actions will be scrutinized under general anti-avoidance rules by the Federal Tax Authority (FTA). Factors considered include financial, economic, and organizational connections.
E. Compliance Obligations
Entities opting for Small Business Relief must fulfill all compliance obligations under the CT Law. This includes registering for corporate tax purposes, filing simplified tax returns, ensuring adherence to the arm’s length principle, and retaining relevant documents and records to support their tax filings. The Federal Tax Authority reserves the right to verify compliance and may request information or records within specified timelines.
Fostering Growth through Tax Relief
The introduction of Small Business Relief underscores the UAE’s commitment to nurturing a conducive environment for small enterprises. By alleviating the tax burden and compliance costs, the initiative aims to spur innovation, entrepreneurship, and economic growth. However, it’s imperative for eligible entities to understand the criteria and comply with regulatory obligations to fully benefit from this relief measure. As the business landscape evolves, initiatives like Small Business Relief play a pivotal role in driving sustainable development and prosperity.
Illustrative Examples:
Example 1: Electing for Small Business Relief
Mr X operates a Business in Abu Dhabi. He is a Resident Person for Corporate Tax purposes. He started trading on 1 January 2025 and his Tax Period ends on 31 December. In the most recent Tax Period ending 31 December 2025, Mr X derived Revenue of AED 2,000,000.
Mr X is eligible to benefit from Small Business Relief because he is a Natural Person with a Business or Business Activity generating Revenue in excess of AED 1,000,000 and less than AED 3,000,000 for the 31 December 2025 Tax Period.
Mr. X has not breached the Revenue threshold from previous periods given that the 2025 Tax Period is his first year of operation.
If he wishes to benefit from Small Business Relief, he must make an election in his Tax Return.
Example 2: Non-Resident Persons
ABC Ltd is a USA-incorporated company that has an office in Dubai from which it assists its UAE-based clients. ABC Ltd is a Non-Resident Person for Corporate Tax purposes. In its most recent Tax Period ending 31 December 2024, ABC Ltd derived Revenue of AED 2,500,000, with AED 1,000,000 of this Revenue attributable to its office in Dubai.
ABC Ltd is not eligible for Small Business Relief as it is a Non-Resident Person, regardless of its Revenue or having an office in Dubai.
Example 3: Revenue in previous Tax Periods
Ms Y operates a Business in Sharjah. She is a Resident Person for Corporate Tax purposes. Her Tax Period ends on 31 December each year.
In the most recent Tax Period ending 31 December 2026, Ms Y derived Revenue of AED 1,900,000. In the previous Tax Period ending 31 December 2025, she had Revenue of AED 4,300,000.
Ms Y is not eligible to benefit from Small Business Relief for the Tax Period ending 31 December 2026 as her Revenue has exceeded the threshold of AED 3,000,000 in a prior Tax Period
