Applying For Small-Medium Business Tax Relief In The UAE

With new SMEs flocking to the UAE to take advantage of the opportunities within the UAE and the Middle East region, in conjunction with ushering in a new tax regime, the UAE government have also provided guidance on Small Business Relief (SBR) to help entrepreneurs and smaller foreign investors quickly find their operational feet. We provide a step by step introduction to obtaining SBR.

Tax Compliance

Under the Small Business Relief, business owners:

• Will not be required to calculate their taxable income or pay corporate tax even if their revenue exceeds Dh 375,000 (@ US$102,000).
• Can benefit from a simplified tax return (compared to a normal tax return) and record-keeping requirements.
• Can opt to follow a cash in and out basis for accounting,
• Can undertake reduced transfer pricing compliance.
• Must 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 deadlines to obtain corporate tax registration immediately, however we recommend that this is carried out as soon as the business is registered. The registration process is fairly simple and should not take more than 30 minutes.

Individuals Operating As a Business

Individuals conducting business should evaluate their registration requirements if their business revenue exceeds Dh1 million, (@ US$272,500) excluding wages, personal investment income and real estate income.

Are You Eligible for SBR?

For the first tax period, the Small Business Relief would be available if the business’s revenue does not exceed Dh3 million. (@ US$817,500) For any subsequent tax period up to December 31, 2026, the respective revenue of the relevant tax period as well as of any past tax periods should not exceed this amount.

For example, we can suggest that 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 SBR for the period January to December 2024.

However, for January to December 2025, it would not be eligible as the revenue exceeded Dh3 million. For 2026 too, it would not be available – despite Dh2.5 million revenue – as the revenue of pervious tax period exceeded Dh3 million.

Revenue is the gross amount of income derived during a tax period. This means that for 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.

Defining Revenue

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.

All businesses – including social media influencers – need to be aware 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.

Non-Eligibility for SBR

A business would not be eligible for Small Business relief under three scenarios.

• 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.
• If the business is a ‘Qualifying Free Zone Person’.
• The business should not be non-resident person/company.

Applying for Small Business Relief

Small Business relief is an optional relief and has to be chosen as an option when submitting the tax return (due by the end of 9 months from the end of the tax period). However, no immediate action is required during the Corporate Tax registration or during the tax period.

Areas to Watch

SMEs and start-ups can be confused about tax issues such as the 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.

Business owners should maintain records to 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.

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 organisation links to determine artificial separation and impose penalties.

Preparation

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.

Dezan Shira & Associates assist foreign investors into the UAE and have serviced clients throughout  Asia since 1992. For assistance with SME tax planning please contact us at dubai@dezshira.com.

Please also see our ‘Doing Business in Dubai 2023’ complimentary guide below.

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