UAE Corporate Tax: SMEs, startups need to do this checklist to be eligible for Small Business Relief
Businesses must track all eligibility criteria, and not just the Dh3m revenue cut-off
UAE SMEs, startups and individuals conducting business should draw confidence from the tax authorities’ endeavour to reduce their compliance obligations. And which was affirmed in the recent guidance on Small Business Relief (SBR).
The business owners need to follow this simple toolkit.
Don’t be anxious
First things first, business owners need not be anxious about tax compliances and unknown penalties. Under the Small Business Relief, business owners:
- Will not be required to calculate their taxable income or pay any corporate tax thereon even if it exceeds Dh 375,000.
- will benefit from a simplified tax return (compared to a normal tax return) and record-keeping requirements.
- Can opt to follow cash basis of accounting, and
- Can undertake reduced transfer pricing compliance.
Register for corporate tax
Registration for companies is mandatory irrespective of their turnover, profit/loss status or their eligibility for Small Business Relief. There are apparently no specific deadlines to obtain corporate tax registration immediately or consequential penalties.
It is however prudent to obtain the registration at the earliest. The registration process is fairly simple and should not take more than 30 minutes.
Individuals conducting business should evaluate their registration requirements if their business revenue exceeds Dh1 million, excluding wages, personal investment income and real estate income.
Check eligibility
For the first tax period, the Small Business Relief would be available if the business’s revenue does not exceed Dh3 million. For any subsequent tax period up to Dec 31, 2026, the respective revenue of the relevant tax period as well as of any past tax periods should not exceed Dh3 Million.
To illustrate, let us assume that a SME’s revenue for January to December 2024 and January to December 2026 are Dh2.5 million each but Dh4 million for January to –December 2025. The SME would be eligible for Small Business Relief for January to December 2024.
However, for January to December 2025, it would not be available as the revenue exceeded Dh3 million. For 2026 too, it would not be available - despite AED 2.5 million revenue – as the revenue of pervious tax period exceeded Dh3 million.
Revenue is the gross amount of income derived during a tax period. To illustrate, for manpower supply companies or companies trading at pre-agreed margins, the revenue should be their gross receipts instead of their mark-ups/margins, which is assumed to be their practical income.
Revenue is exclusive of VAT, if charged by the business on its sales.
In addition to the income from the sales, revenue will include any other gross income such as asset sales, sale of business, exempt income like dividends and interest earned by companies, etc.
Businesses especially social media influencers need to remember that revenue includes non-cash receipts and barter arrangements such as free goods/services in kind.
If the business is transacting with related parties, including group companies, the revenue should be determined based on the ‘arm’s length’ principle.
Check exclusions
A business would not be eligible for Small Business relief in three scenarios.
One, if it is a member of a Multinational Enterprise Group (MNE), wherein the consolidated group revenue is more than Dh3.15 billion apart and is subject to UAE’s reporting requirements. Two, if the business is a ‘Qualifying Free Zone Person’. Lastly, the business should not be non-resident person/company.
Electing for Small Business Relief
Small Business relief is an optional relief and has to be elected at the time of submitting the tax return (due by the end of 9 months from the end of the tax period). Accordingly, no immediate action is required during the Corporate Tax registration or during the tax period.
If not already so, SMEs and start-up are likely to be confused about concepts such as inability to carry-forward tax losses or excess interest costs under Small Business Relief. As submission for relief is required only at the time of tax return, forecasting the ability to carry forward losses/interest could be undertaken after the end of the first tax period.
Maintain documentation and records
Business owners need to maintain records to inter-alia demonstrate their eligibility for Small Business Relief. This should include bank statements, sales ledgers, invoices, order records and business correspondence. The records should be maintained (physically or electronically) for seven years from the end of the tax period.
If eligible, the non-deductibility of any expense - possibly including owners’ salary - should not impact the business or Small Business Relief eligibility.
- Act prudently: Business owners should remain prudent and not attempt to artificially split businesses into multiple entities to remain eligible. Artificial separation could be functional, geographical or temporal. The Federal Tax Authority (FTA) could examine financial, economic and orgnaisational links to determine artificial separation and impose penalties.
- Prepare for tax: The Small Business Relief aims to provide relief in the early stages of the corporate tax regime and is valid for financial years ending on or before December 31, 2026. Business owners should use the next three years to prepare and be ready for comprehensive tax compliance.
As taxation is new to the region, business owners should ensure that they do not become anxious or fear unknown penalties. Asking right questions is important to understand tax obligations as well as tax reliefs.