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UAE Small Business Tax Relief Explained

Table of Contents
Introduction

In today’s exploration of the United Arab Emirates’ (UAE) dynamic business landscape, we’re shining a spotlight on a game-changing development – the Small Business Tax Relief. Whether you’re a seasoned player in the UAE business scene or contemplating the vibrant opportunities it offers, the insights we’re about to unveil are crucial. 

So, buckle up for a journey through the intricacies of the UAE’s tax realm, specifically designed to ease the path for small businesses – the Small Business Tax Relief. Your guide to navigating this exciting landscape starts here!

The New 9% Corporate Income Tax Rate: A Quick Recap

Before we delve into the specifics of Small Business Tax Relief, let’s rewind a bit. The UAE recently introduced a 9% corporate income tax rate on business profits exceeding 375,000 Dirhams. This marked a significant shift in the tax landscape, signaling a new era for businesses operating in the country.

The introduction of federal corporate tax in UAE aims to further strengthen the country’s position as a world-leading hub for businesses and investment and accelerate the strategic objective towards development and transformation. Also, the corporate tax concept helps meet international standards for tax transparency and avoids harmful tax practices.

What is Small Business Tax Relief?

Recognizing the diverse business ecosystem, the UAE government has introduced Small Business Tax Relief. This relief is essentially a measure to ease the implementation of the new corporate income tax rate, particularly for small businesses. Here’s how it works:

Compliance Relief:

Small businesses can breathe a sigh of relief as the Small Business Tax Relief reduces compliance obligations. This means that these businesses are exempt from the usual burden of calculating, reporting, and paying corporate taxes during specific tax periods.

Qualification Criteria:

To qualify for this tax relief, your company must meet a specific revenue threshold. According to the Federal Tax Authorities, the magic number is 3 million Dirhams for each individual tax period. These tax periods span from January to December for the years 2024, 2025, and 2026.

Application Period:

The Small Business Tax Relief applies from June 1, 2023, to December 31, 2026. During this time, eligible businesses can benefit from reduced tax compliance responsibilities.

Qualifying for Small Business Tax Relief: A Closer Look

Now, let’s break down the key eligibility criteria:

Revenue Threshold:

Your company’s revenue should not exceed 3 million Dirhams in each tax period (2024, 2025, and 2026). If your business falls below this threshold, congratulations – you qualify for the Small Business Tax Relief.

Registration for UAE Corporate Tax:

To avail of this relief, your company must be registered for UAE corporate tax. Ensure that your revenue calculations align with the accounting standards prescribed in the UAE.

Exemption for Qualifying Free Zone Companies:

Notably, qualifying free zone companies might enjoy complete exemption from the 9% corporate income tax rate. Whether your free zone company qualifies for this exemption depends on your specific business activities.

Eligibility Criteria

To qualify for Small Business Relief, a Taxable Person must meet certain criteria:

  1. Revenue must be less than or equal to AED 3,000,000 for the relevant Tax Period and all previous Tax Periods ending on or before December 31, 2026. 
  2. The election for Small Business Relief must be made within the Tax Return for the respective Tax Period. 
  3. SBR is available to the resident persons inclusive of :
  • Juridical person incorporated in the UAE including freezone persons 
  • Juridical persons incorporated outside the UAE but controlled and managed from UAE 
  • Any natural person who carries out business or related activity in UAE 
  • Any person as identified by the cabinet under any decision
Small Business Tax Relief Measures

A business must meet the following conditions to be eligible for Small Business Relief:

  • It must be a resident person in the UAE. 
  • Its revenue for the relevant tax period and previous tax periods must not exceed AED 3 million. 
  • It must not be a financial institution or a holding company.

 

If a business meets the criteria for Small Business Relief, it will not have to pay any CT on its profits. It will also be subject to reduced compliance requirements, such as simplified transfer pricing rules.

In conclusion, the Small Business Relief is a valuable tax break for small businesses in the UAE. It can help to reduce the cost of doing business and make it easier for small businesses to grow and succeed. The intent behind the small business tax relief is to support local businesses with lower annual revenue and reduce their costs in order to help them thrive. However, businesses must carefully evaluate whether claiming the relief is beneficial for them in each tax period based on factors like taxable profits, interest costs, and available tax reliefs.

Conclusion

As we navigate this evolving tax landscape, it’s crucial to stay informed and take strategic steps for your business. If you’re contemplating establishing a company in the UAE or seeking guidance on tax matters, our tax and accounting team at Genzone is here to assist you. Book a call with us, and let’s embark on this journey together.

In the ever-dynamic world of UAE business taxation, the Small Business Tax Relief stands as a testament to the government’s commitment to fostering a supportive environment for enterprises. Stay tuned for more updates, and may your entrepreneurial endeavors thrive under the sun-kissed skies of the UAE! 

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