What Is Small Business Relief under UAE Corporate Tax?

Priyanka Babu | Updated on: November 11, 2024

UAE introduced a new corporate tax regime effective from 1 June 2023. Under the guidelines of the new tax policy, taxpayers will have to pay a certain rate of corporate tax on the income they earn. However, the government of UAE has launched a program called small business relief to help small businesses avoid paying taxes.

If you are a small business owner in the UAE, it is important that you understand small business relief and whether your entity is eligible to claim exemption under it. Let us understand small business relief and who can claim it.

Small Business Relief explained

Small business relief is a program enacted by the government of UAE to allow eligible resident taxable persons, both natural and juridical, to opt for an exemption from UAE corporate tax, given their revenue meets the criteria. Have a look at the significance of this program:

• Administrative relief – Those who qualify for small business relief are exempt from maintaining rigorous administrative processes like filing returns and bookkeeping. They are free to use cash based accounting systems to make the financial management processes simpler and easier.
• Tax relief – Those who qualify for small business relief do not need to pay any corporate tax on their taxable income earned for that taxable period. Apart from this, their compliance requirements are much more relaxed than other businesses. Their transfer pricing rules, for example, are quite simple and easy to follow.

Who is eligible for small business relief?

Resident taxpayers in the UAE (both natural and juridical) are eligible for small business relief under the following conditions:

• They should earn only a maximum of AED 3 million for a particular tax period and all the previous tax periods ending on or by 31 December 2026
• The relief should be opted for within the tax returns of that particular tax period
• Taxpayers should not be a financial institution or a holding company
• Resident persons who are eligible for the relief can by any one of the following:
  • Juridical person incorporated in the UAE; this includes free zone persons as well
  • Juridical person incorporated outside the UAE, but their control and management remain within the UAE
  • Natural person engaging in a business or business activity within the UAE
  • Any cabinet-identified person under any decision

Who cannot claim for the relief?

The following persons cannot claim corporate tax exemptions under the scheme in the UAE:

• MNEs (Members of Multinational Enterprise Groups) – If the business belongs to a large MNE with a consolidated group revenue of more than 3.5 billion AED, it cannot opt for small business relief.
• Qualifying Free Zone persons – These persons are already in the 0% corporate tax rate. Hence, they are not eligible for a further exemption under this relief scheme.

To make the most of the relief, businesses must carefully analyze if they are eligible and if the relief is in line with their profits. Additionally, small businesses should remember that they cannot claim other tax benefits when they claim for a small business relief. Therefore, it is a good idea for businesses to think of all these factors before they claim for the relief.

When you claim small business relief you should ensure that your books of accounts are in order with accurate turnover figures. If you are struggling with maintaining books of accounts, try TallyPrime.

TallyPrime is the best accounting software tailored for small businesses to seamlessly maintain books of accounts with zero chances of error. You can find your cash balance, annual turnover, get your balance sheet, generate business report etc., with ease to manage your business better and improve productivity.