Small Business Relief
In the vibrant landscape of the United Arab Emirates (UAE), small businesses play a pivotal role in driving economic growth and innovation. Recognizing their significance, the UAE government has introduced Small Business Relief, a tailored initiative designed to reduce the Corporate Tax burden and ease compliance costs for eligible businesses operating under the Corporate Tax regime.
Qualifying for Small Business Relief
To qualify for small business relief, an entity must be an eligible Taxable Person with Revenue equal to or below AED 3,000,000 in the relevant Tax Period and all previous Tax Periods, ending on or before December 31, 2026. This financial threshold serves as a gateway for businesses seeking relief. By opting for small business relief, these entities can enjoy several benefits:
1. Exemption from Taxable Income Calculation:
When a business qualifies for small business relief, it is treated as having no Taxable Income in the respective Tax Period. Consequently, it is not required to calculate Taxable Income or complete a full Tax Return for that period. This exemption simplifies the compliance process significantly.
2. Continued Use of Tax Losses:
Entities benefiting from small business relief can still carry forward any unutilized Tax Losses and disallowed Net Interest Expenditure from prior Tax Periods. These can be utilized in subsequent Tax Periods when small business relief no longer applies.
Who Qualifies for Small Business Relief?
To benefit from Small Business Relief, a Taxable Person must fulfill the following criteria:
1. Revenue Threshold: The Taxable Person's Revenue should be equal to or below AED 3,000,000 in the relevant Tax Period and all preceding Tax Periods, ending on or before December 31, 2026. This threshold is pivotal for eligibility.
2. Not a Multinational Enterprise:The Taxable Person must not be a Constituent Company of a Multinational Enterprise required to prepare a Country-by-Country Report under UAE's Country-by-Country Reporting legislation.
3. Exclusion of Qualifying Free Zone Persons: Qualifying Free Zone Persons, who enjoy distinct tax benefits, are not eligible for small business relief.
How Small Business Relief Works
For an eligible Resident Person, opting for small business relief means they can effectively treat a specific Tax Period as if it had no Taxable Income. This relieves them from the obligation of calculating Taxable Income or completing a full Tax Return for that period. It's important to note that even when a Taxable Person chooses small business relief, they can still carry forward any unused Tax Losses and disallowed Net Interest Expenditure from previous Tax Periods. These can be utilized in future Tax Periods when small business relief no longer applies, providing businesses with flexibility in managing their tax liabilities
Transfer Pricing Considerations
While small business relief simplifies tax compliance for eligible Resident Persons, they are still required to adhere to the arm's length principle in their transactions. This ensures that their transfer pricing remains fair and consistent with market norms. However, during the Tax Period when a Resident Person opts for small business relief, the obligation to maintain transfer pricing documentation is temporarily waived.
Get in Touch
Please contact finance@hicuae.com for further updates
