Small Business Relief in UAE offers a lifeline for qualifying businesses seeking a reprieve from corporate taxes. Unlike a zero percent corporate tax rate, this relief comes with its conditions and criteria. This article will unravel the complexities and shed light on the eligibility requirements for small business relief under corporate tax in the UAE.

Conditions and Criteria for Small Business Relief in UAE:

To be eligible for small business relief, a business must meet certain criteria, including a Revenue Threshold of not exceeding 3,000,000 dirhams. Businesses falling within this bracket must actively elect and apply for small business relief in their tax returns for each relevant period. Even if income is approved as non-taxable, registration with the Federal Tax Authority for corporate tax purposes is mandatory.

Restriction to Tax Period Ending on or before December 31, 2026:

Small business relief applies only to taxable periods commencing on or after June 1, 2023. Additionally, relief is limited to taxable periods concluding on or before December 31, 2026, with the cumulative income not surpassing the 3,000,000 dirhams threshold.

Resident Persons:

Natural Persons & Juridical Persons: Resident persons, encompassing juridical entities (companies) and natural persons (individuals), can qualify for small business relief in UAE. Even freezone persons are eligible, provided they meet the stipulated conditions. However, not all income of natural persons falls under corporate tax, and the application for relief depends on meeting the specified criteria.

Exclusion of Constituents of MNEs:

Businesses affiliated with large multinational entities (MNEs) cannot benefit from small business relief in UAE, regardless of meeting the criteria. MNEs operating globally must comply with diverse tax laws, making small business relief inapplicable.

Exclusion of Qualifying Freezone Persons:

While qualifying freezone persons enjoy a zero percent corporate tax rate, they can opt for small business relief if they choose to be subject to corporate tax under specific conditions. This makes them eligible for relief during a particular taxable period.

Permanent Establishments of Non-Resident Persons:

Permanent Establishments (PEs) belonging to non-resident persons are generally ineligible for small business relief. However, PEs can qualify if the non-resident persons belong to a country with a Double Tax Treaty with the UAE that necessitates the non-discrimination of PEs.

UAE Sourced Income & Foreign Income:

Businesses in the UAE often generate both UAE-sourced and foreign income. For small business relief in UAE eligibility, the calculation should include both types of income. Failure to incorporate foreign income can lead to inaccurate calculations and affect relief eligibility.

Accounting Standards for Revenue Calculation:

The choice of accounting standards significantly influences income calculation for tax purposes. Businesses opting for small business relief in UAE benefit from the flexibility of generating cash-basis financial statements when their annual income is below the 3,000,000 dirhams threshold.

Implications for Resident Persons that are VAT Registered:

Businesses subject to Value Added Tax (VAT) must exercise caution. VAT collected from customers does not contribute to net income and should be excluded from calculations. Failure to do so can result in miscalculations that impact small business relief eligibility.

Summing It Up:

Businesses are encouraged to seek professional guidance when navigating the intricate landscape of small business relief in UAE under corporate tax. Corporate Tax Advisory Services, including top tax consultants in the UAE, can provide invaluable assistance in understanding corporate tax provisions, ensuring compliance, and optimizing relief opportunities. Contacting such services is prudent for businesses aiming to thrive in the UAE’s dynamic corporate tax environment.

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