In a move to empower small businesses, UAE launched the Small Business Relief as a note-worthy provision under its new corporate tax regime. Having been designed to simplify the implementation of the corporate tax framework for small businesses, it empowers every tax consultant in UAE in alleviating the burden of calculating and paying corporate tax, which subsequently goes a long way in reducing the complexity of compliances.
This essentially means that any eligible resident taxable person, irrespective of whether it’s a natural person or judicial person with revenue below or equal to AED 3,000,000 in both relevant and all previous tax periods which end on or before 31 December 2026, can opt to be treated as having no taxable income for that period. Consequently, these taxable persons are eligible for Small business relief and are exempt from calculating the taxable income or completing a full tax return.
Since this relief is optional, it implies that Resident persons who wish to opt for the same have to elect for it within their tax return, which can nevertheless be excruciating. To make this process seamless, and to help in determining eligibility for small business relief, it is always wise to outsource corporate tax services in UAE.
Overview of the Small Business Relief
| If election for Small Business Relief is Made | If no election for Small Business Relief is Made | |
|---|---|---|
| Required to register for Corporate Tax | YES | YES |
| Required to file a full Tax Return | NO | YES |
| YES | YES | NO |
| Required to calculate Taxable Income | NO | YES |
| No Corporate Tax to pay | YES | Depends on the level of taxable income |
Eligibility for Small Business Relief
While almost all taxable resident persons are eligible for opting for the small business relief, there are certain exceptions, which includes:
- Where the business is a Qualifying Free Zone Person
- Where the business is a member of a Multinational Enterprise Group (MNE)
Note: It is important to remember that a Tax group can opt for a Small Business Relief if its revenue is below or equal to AED 3,000,000.
Benefits of Small Business Relief
Taxable persons who have opted for Small Business Relief have the power to benefit from dual advantage, standing at the crossroads of administrative and tax relief. As per the former they are not obligated to calculate their taxable income and benefit from a simplified tax return filing and record keeping. Although record keeping is mandatory, tax consultants in UAE can help leverage the benefit of maintaining their financial statements using the cash basis of accounting. While the latter offers them the privilege of not having to pay any corporate tax on the income earned during that particular tax period. In addition, businesses choosing this relief are relieved from maintaining transfer pricing documentation for the relevant tax period.
Required List of Documents
Here’s an exhaustive list of documents that need to be maintained if one is opting for a Small Business Relief,
- Bank Statements
- Sales Ledgers
- Invoices or other records detailing daily earnings
- Order Records and Delivery Notes
- Other relevant business correspondence
Meaning of Exempt Income and its Relation with Small Business Relief
Exempt income essentially includes income from dividends or other such avenues and is not included as a part of the taxable income. But when it comes to Small Business Relief, the rules of exempt income become null, meaning that even if the income is not taxable it will still be included when calculating the revenue for Small Business Relief purpose.
Let’s say ABC LLC is a resident person and during its tax period ending 31 December 2024, it made sales of AED 2,500,000. In addition, ABC LLC also received dividends of AED 1,000,000 from XYZ
LLC, who also happens to be a Resident Person. Although the income from dividends is exempt income and essentially not taxable, the provision related to exempt income is inapplicable when calculating Small Business Relief.
This means that the dividend income will be included in the calculation of ABC LLC’s revenue, which will push its revenue to a grand total of AED 3,500,000. Following ABC LLC is ineligible to opt for the Small Business Relief for the tax period ending 31 December 2024.
Leveraging the power of Small Business Relief for Zero Corporate Tax
To ensure that you are taking complete advantage of the Small Business Relief available to you, it is important that you consult a leading corporate tax consultant in UAE like A&A Associate. Our team can help you make the most informed business decisions.
For further enquiries, please feel free to contact us.
