UAE Corporate Tax: Registration mandatory for small businesses, even with losses
As full-year tax period kicks in, UAE SMEs must prioritise signing up for corporate tax
Dubai: Now that the UAE’s first full-year corporate tax period has started, businesses must ramp up their auditing processes – and most important, be sure to register with the Federal Tax Authority on the compliance side.
It doesn’t matter whether the business is relatively new or has been making losses. They need to register irrespective of whether their annual profit is above or below the Dh375,000 threshold.
“There still seems to be doubts among some SME owners that corporate tax registration can wait until their profits approach the Dh375,000 profit mark,” said a tax consultant. “They are wrong.”
The registration process for corporate tax has been open since June last year. Under the UAE rules, businesses that observe the calendar year as their financial year will be paying their 2024 corporate tax by September of 2025.
There is ‘Small Business Relief’
“Businesses are required to prove eligibility – they must submit tax returns and keep necessary records,” said Naqash Ahmed, Managing Director at Dubai-based Capital Plus consultancy. “If they don’t meet the Dh375,000 profit level, eligible taxable persons (i.e., business owners) can elect for the ‘Small Business Relief’ on their tax return.
“Once this selection has been made, they will be able to complete a simplified tax Return and benefit from the relief.”
Here’s what to know about Small Business Relief
- To be eligible for the relief, the business’s revenue must be below or equal to Dh3 million for the latest and all previous tax periods.
- Where the revenue exceeds Dh3 million, the business will no longer be able to elect for the relief package, even if the revenue falls below the threshold in subsequent tax periods.
But the bottom-line remains the same – these businesses will still need to register for corporate tax.
All through recent weeks, the UAE tax authorities had been holding workshops and provided regular guidelines on various aspects of the corporate tax, which has been set at 9 per cent of the annual profit, provided the threshold of Dh375,000 is crossed.
“The UAE Corporate Tax applies to all businesses ‘incorporated, effectively managed and controlled’ in the UAE,” said Ahmed. “That in effect means registration is mandatory regardless of profit or revenue that a business makes.
“We do recommend that companies use accounting software as part of their tax best practices, although we have seen companies use Excel based accounting as well.
“If a business wants to tap independent auditors, the costs are competitive in the UAE - but the actual cost to a business depends on the volume and the complexity of the operations.”
What was the VAT registering threshold?
UAE businesses already have form in meeting the VAT requirements. Under the VAT registration, the companies had the option to register voluntarily if their taxable supplies reached Dh187,500 and mandatory if it touched Dh375,000.
But there is the stark difference – VAT is all about a tax imposed on each transaction. The rules of engagement are thus vastly different from what businesses must follow for corporate tax compliance.
"Even if it's a new business being set up now in the UAE, the owner(s) will be better off registering for corporate tax," said a consultant. "That's one box that needs an immediate ticking off."