Foreign Sole Traders In The UAE Should Consider Upgrading Business Licences To SME Status As Tax Incentives Apply

Changing from sole trader to SME status can save US$546,000 in tax exposure

Individually run businesses, and especially those in the ecommerce/tech space in the UAE, should seriously consider upgrading their licenses to SME status given the new provisions in the UAE Corporate Tax regulations.

In an update issued last week, the UAE Ministry of Finance said that the corporate tax would apply to individuals generating a turnover of more than Dh1 million a year (@US$273,000).

Maria Kotova of Dezan Shira & Associates Dubai said “There are many individually owned businesses and sole traders who are receiving more than Dh1 million as their annual revenues. If so, they will then come under the new tax code and should consider upgrading their business licenses, as the tax revenue threshold is three times higher.”

This is because SME business licenses have a tax revenue threshold of Dh3 million (@US$820,000).

For this reason, upgrading to an SME status makes more sense. It is also an active incentive offered by the government authorities to encourage business activity by providing extended relief for small businesses.

SME Tax Relief

This is where the previously announced UAE ‘Small Business Relief’ tax package kinks in. Small businesses generating revenues under Dh3 million during the taxable period come under the relief coverage and will be eligible for tax relief for a three-year period. Individuals will not.

Freelancers and other sole traders booking revenues of more than Dh1 million need to have a look at the pros and cons of getting licensed as a full-fledged commercial entity.

Small businesses in the UAE can benefit for tax periods starting on or after June 1 2023. They may then apply for subsequent tax periods that end before or on December 31, 2026.

Tax Status of ‘Natural Persons’

The UAE Ministry of Finance has this to say about UAE residents generating revenues from any activity. If the combined turnover from this endeavour exceeds Dh1 million, the individual would be subject to corporate tax. If they are registered as an SME, the tax doesn’t kick in until revenues of Dh3 million – a straight-forward benefit for foreign, UAE residents to switch to a licensed corporate entity.

For assistance with registering as an SME, please contact Maria Kotova at dubai@dezshira.com

Related Reading

• Applying For Tax Relief Under the UAE SME Tax Relief Programme
• An Introduction to Doing Business in Dubai 2023

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