Upon the introduction of corporate tax, the United Arab Emirates (UAE) continues to enhance its business environment. The government has rolled out several critical incentives, notably the Small Business Relief program designed to ease the burden on start-ups and small enterprises.

Moreover, under the newly established tax regime, businesses that generate taxable profits below AED 375,000 will be subject to a corporate tax rate of 0%. This threshold ensures that smaller businesses will not be immediately affected by the new tax requirements.

What is Small Business Relief?

Under Ministerial Decision No. 73 of 2023, businesses with revenues of AED 3 million or less can benefit from Small Business Relief, meaning they will not be required to pay corporate tax. This initiative is aimed at fostering growth for start-ups and smaller businesses, allowing them to focus on development without immediate tax concerns.

For businesses that meet the eligibility criteria, the relief is not only a financial benefit but also a reduction in compliance complexities and administration, streamlining operations for smaller players in the market. Specifically, if your total revenue does not exceed AED 3 million, you can avoid calculating taxable profits and filing a full tax return, significantly reducing administrative burdens.

Eligibility Criteria

To qualify for a Small Business Relief, taxable persons must satisfy certain conditions, primarily pertaining to revenue generation. To remain eligible, businesses must keep their revenues below the AED 3 million threshold for each tax period. Importantly, should a business exceed this revenue threshold at any time, the Small Business Relief will no longer apply, thus necessitating vigilance in financial management.

The revenue threshold is effective for tax periods commencing on or after June 1, 2023, and will remain applicable for subsequent periods up until December 31, 2026. This timeline provides ample opportunity for small businesses and startups to capitalize on the relief as they establish and grow their operations.

Understanding Revenue Calculations

For the purposes of qualifying for Small Business Relief, “revenue” is defined in the Corporate Tax Law as the total gross amount of income received during the tax period.

Exclusions from Small Business Relief

It's crucial for business owners to note that Small Business Relief is not available to all persons. Specifically, the relief does not extend to:

• Qualifying Free Zone Persons;
• A Constituent Company of a Multinational Enterprises Group as defined in Cabinet Decision No. 44 of 2020.

Significantly, Small Business Relief is still available to UAE-registered companies in free zones that do not meet the criteria for Qualifying Free Zone Persons, providing a valuable opportunity for many business structures.

How to Apply for Small Business Relief

The application process for Small Business Relief is straightforward but requires registration for corporate tax. To qualify for the Small Business Relief, eligible taxpayers need to submit a simplified tax return and select the Small Business Relief option. This election must be made for each tax period.

It's essential to remember that if a business files its tax return without selecting the Small Business Relief option, the opportunity to benefit from the relief for that period is forfeited. Therefore, businesses must remain diligent in their reporting and ensure that the Small Business Relief selection is made annually and timely.

The introduction of Small Business Relief in the UAE provides a significant incentive for small entrepreneurs and start-ups to thrive in an increasingly competitive market. By reducing financial and administrative burdens, this initiative allows beginning businesses to focus more on innovation and growth.

For business owners eligible for Small Business Relief, now is the time to take advantage of these incentives. Ensure your financial practices align with the requirements, and don’t miss out on the opportunity to benefit from this tax relief over the next few years.

For more information on how to navigate these changes and ensure compliance with the UAE's tax laws, consider seeking professional assistance from DiLex Group to guide you through the process.