The UAE Corporate Tax Law, in its pursuit of fostering a thriving business environment, introduces Article 21, known as Small Business Relief. This provision aims to extend corporate tax relief to Resident Taxable Persons whose revenue falls below a specified threshold. Small Business Relief is a strategic move to support budding start-ups, as well as small and micro-enterprises by alleviating their corporate tax burdens and compliance costs. In this article, we’ll delve into the eligibility criteria, exemptions, and the compliance requirements related to Small Business Relief.
A. Eligibility Criteria:
In order to qualify for Small Business Relief under the UAE Corporate Tax Law, a Taxable Person must meet the following criteria:
- UAE Tax Residency: The applicant must be a resident taxable person in the United Arab Emirates.
- Revenue Threshold: The gross income for the relevant and previous Tax Periods should not exceed AED 3,000,000 (three million). It’s important to note that this threshold, as specified in Ministerial Decision No. 73/2023, applies from June 1, 2023, and will remain in effect until December 31, 2026, for all relevant tax periods.
Consolidated Revenue for Tax Groups: In the case of a Tax Group, it can elect for Small Business Relief if its consolidated revenue does not exceed AED 3,000,000.
Accounting Standards: The revenue calculation should adhere to the applicable accounting standards accepted in the UAE for corporate tax purposes. These standards include the International Financial Reporting Standards (IFRS) and IFRS for Small and Medium-sized Entities (SMEs), as specified in Ministerial Decision No. 114 of 2023.
Election in Tax Return: The election for Small Business Relief must be made in the Tax Return for each Tax Period.
B. Ineligible Persons:
Not all Resident Persons are eligible to avail of Small Business Relief. The following groups are excluded from this tax relief provision:
- Constituent Companies of Multinational Enterprises Groups: Companies that are part of a Multinational Enterprises Group and are required to prepare a Country-by-Country Report (CbCR) under UAE’s CbCR legislation, especially those with a total consolidated revenue greater than AED 3.15 billion, are ineligible for Small Business Relief.
- Qualifying Free Zone Persons: Qualifying Free Zone Persons do not have access to Small Business Relief.
C. Exempt Provisions:
To streamline compliance and prevent the possibility of double tax benefits, the following provisions under the Corporate Tax Law will not apply to individuals or entities opting for Small Business Relief:
(a) Exempt Income
(b) Reliefs
(c) Deductions
(d) Tax Loss Relief
(e) Transfer Pricing Documentation
D. Anti-Abuse Rule:
The UAE Corporate Tax Law includes an anti-abuse rule to prevent any artificial separation of business activities. If it is determined that individuals or entities have separated their business operations in an attempt to exceed the AED 3,000,000 revenue threshold while opting for Small Business Relief, this will be viewed as an endeavor to gain a corporate tax advantage.
The Federal Tax Authority (FTA) will assess whether this separation serves a valid commercial purpose and whether the parties involved are essentially engaged in the same business activity. Various factors, including financial, economic, and organizational connections, will be considered in this assessment.
E. Compliance Requirements:
a. Continued Taxable Person Status: Even after opting for Small Business Relief, every eligible person remains a Taxable Person under the Corporate Tax Law and must fulfill all compliance obligations for each Tax Period.
b. Obligations: These obligations include registering for corporate tax purposes, filing a simplified Tax Return, ensuring adherence to the arm’s length principle, and retaining all relevant documents and records to support their corporate tax filings.
c. FTA Verification: The Federal Tax Authority has the authority to take necessary measures to verify compliance with the conditions. They may request any relevant information or records from the Taxable Person within the timeline prescribed by the FTA.
Small Business Relief is a welcomed addition to the UAE Corporate Tax Law, offering a lifeline to small and micro-businesses, allowing them to thrive and grow without the burden of excessive tax liabilities. By understanding and complying with the eligibility criteria and compliance requirements, businesses can make the most of this tax relief and contribute to the growth and prosperity of the UAE’s business landscape.
