Applying For Tax Relief Under the UAE SME Tax Relief Programme

Since 2014, the UAE government has introduced a national program to develop, support and encourage the Small-Medium Enterprise (SME) sector. The latest corporate tax relief – referred to as ‘Small Business Relief’ (SBR) – provides additional support to the SME sector – including new start-ups.

We explain how this works and who qualifies.

The US$820,000 Annual Revenue Threshold

If a taxable person’s revenue in a financial year (starting on or after June 1, 2023) does not exceed Dh3 million, (US$817,000) then no corporate income tax is payable – irrespective of any actual profits. The Dh3 million threshold is fairly significant, as well as pragmatic as the SBR is not linked to the ownership structure, number of employees or the type of business.

Period and Conditions for Tax Relief

The SBR will be available for financial years ending on or before December 31, 2026. Depending on the taxpayer’s financial year, SBR will be effective for two to three years. If your financial year starts, for example, in April, then the SBR applies to the period April 1, 2024 to March 31, 2025 and April 1, 2025 to March 31, 2026.

If your business revenue in a financial year exceeds Dh3 million, SBR would not be available for the remaining financial year(s) even if the revenues for such subsequent year(s) is less than the Dh3 million. SBR can be accessed by all such taxable persons, whether incorporated companies or individuals, who are a ‘resident person’.

However, this does not apply to persons who are eligible for any free zone tax relief or are part of a MNC. It is also worth noting that the tax relief is not a constant feature of the tax laws. New start-ups or SMEs launching in Q3/Q4 of 2026 or later would not be eligible unless any tax relief is extended in the future.

Tax Laws Still Apply

Being eligible for SBR does not mean that the UAE Corporate Tax Law itself does not apply to your business.  Businesses are still required to register for Corporate Tax, and to submit the Annual Tax Returns. You should also maintain comprehensive accounts, records, and documents such as a standard P&L and set of accounting books.

This will assist the Federal Tax Authority in evaluating the eligibility for SBR in any audit in the next 7 years. A formal prior approval of FTA is not required for tax relief, and the annual tax return will have an option to elect for SBR.

In addition to the 9% Profits Tax relief, other tax exemptions such as transfer pricing documentation are also be available to small businesses in the UAE.

Options: Apply For SBR Or Opt Out?

At first sight, SBR may appear to have only tax advantages for your business. However, SME owners should evaluate their tax position before opting for the tax relief. If your business is incurring a tax loss, or is highly leveraged resulting in a net interest expenditure of over 30%, opting for SBR will restrict the ability to carry forward the tax loss and the excess interest expenditure.

On the other hand, if you do not opt for SBR, businesses will need to undertake all tax compliances. This will include domestic transfer pricing and benchmarking the salaries paid to owners/directors and employees.

Could A Larger Business Be Split Into Multiple SMEs?

To claim SBR, business owners might momentarily plan to split their business into multiple entities to keep revenues below Dh3 million.

However, the UAE tax authorities will examine if one or more persons have artificially separated their business (into multiple entities) and the aggregate revenue of such entities is effectively more than Dh3 million.

If found to be so, the tax relief would be denied under the anti-abuse rules along with penalties. This includes if any multiple entities were subsequently owned by one person alone, his/her family members or even a third person.

Evaluations will consider whether the persons are carrying on substantially the same business or business activity by considering various facts including financial, economic and organisational links. Attempting to qualify for SBR by deliberately dividing up an existing larger company to smaller SMEs is not recommended, although there remain certain qualifying questions which the UAE tax department will shortly issue guidelines on.

Practical Issues

Evaluating whether or not a business has been split into multiple entities under the anti-abuse rules could pose practical challenges. It is not yet clear if the evaluation would factor in the economic activity codes used by the local economic department and/or the location of business activity.

To illustrate, whether trading of ‘office’ furniture be treated as a separate activity from the trading of ‘home’ furniture? Or trading of furniture be treated as a separate activity from trading of motor vehicle? Will all such activities will come under a single umbrella of ‘trading’?

Could manufacturing activity be separated from onwards retail sale/trading by the same person(s)? Similarly, an audit firm could be providing accounting services to its clients. A corporate service provider could also be providing consulting services. In retail or the restaurant sector, a business owner may take up separate licenses for each location/shop.

Would such scenarios be treated as carrying on the same business activity? Or separate ones?

We have to wait for FTA’s guidance and evolution of the tax policy before business owners make any decision. The spirit of the small business tax relief is to support the start-ups and SMEs. Businesses should follow it in substance and in form. Deliberate attempts to create SMEs by dividing up an existing business may not be deemed acceptable and could generate punishments and fines.

For guidance, please contact us at dubai@dezshira.com to discuss applying for SBR and obtaining tax relief.

Related Reading

• Updates on the UAE’s New 9% Corporate Income Tax Charges and Applicability
• Clarifying Individual Income Tax Liability In The UAE

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