In a recent move, the UAE government has introduced the Small Business Relief (SBR) to support small businesses in managing corporate tax requirements. This privilege is exclusively available to resident taxable individuals, both natural and juridical, with a gross business income of up to Dh3 million in the relevant tax period and any previous tax periods ending on or before December 31, 2026.
To provide further guidance on the application of the UAE Corporate Tax Law to small businesses, the Federal Tax Authority (FTA) has issued a comprehensive Corporate Tax Guide on the Small Business Relief (CTGSBR1). This guide clarifies the eligibility criteria and procedures for small businesses availing the SBR.
According to the law, if the gross income of a resident taxable person does not exceed the threshold set by the Minister (currently set at Dh3 million based on Ministerial Decision No. 73 of 2023 issued on April 03, 2023) in the current and previous tax periods, they can elect to be treated as having no taxable income. Consequently, provisions related to tax losses, tax relief, exempt income, deductions, interest limitations rules, and transfer pricing documentation will not be applicable to such individuals. However, they will still need to register for corporate tax, follow transfer pricing rules to establish arm’s length pricing, and submit a simplified tax return.
It’s important to note that the Small Business Relief is not available to Qualified Free Zone Persons (QFZPs) and individuals who are part of Multinational Enterprises (MNE) groups. QFZPs refer to juridical persons registered in free zones that meet specific conditions, while MNEs are groups of companies operating in multiple countries with a total consolidated group revenue exceeding Dh3.15 billion and are required to prepare a Country-by-Country Report (CbCR) under the UAE’s CbCR Cabinet Resolution No. 44 of 2020.
The Small Business Relief is applicable to various types of resident persons, including juridical persons incorporated in the UAE (including free zone businesses), juridical persons established outside the UAE but controlled and managed from the UAE, natural persons conducting business or business activities in the UAE, and other persons determined by a decision from the Cabinet. However, non-resident persons, including permanent establishments of non-resident individuals in the UAE, are not eligible for the relief.
The gross amount of Dh3 million encompasses revenue from all business activities, both within and outside the UAE. It also includes proceeds from asset sales. All sources of income, whether exempt or taxable, are considered. In cases of fragmentation, the FTA will assess the commercial sense and genuine separation based on individual facts, circumstances, and financial, economic, and organizational links.
Natural persons who are residents are exempt from corporate tax and are not required to register for corporate tax if their income from business activities does not exceed Dh1 million within a Gregorian calendar year. If their income ranges from Dh1 million to Dh3 million, they can opt for the SBR if they meet the requirements. Income from wages, personal investments, and real estate investments is not considered when calculating the thresholds.
The Small Business Relief is optional and can be chosen by eligible resident taxable persons when submitting their tax returns. Even after opting for the relief, these individuals still need to register and submit a simplified tax return. They are not required to calculate their taxable income or submit a full tax return. Those who avail the relief are exempt from paying corporate tax for financial years ending on or before December 31, 2026.
For eligible persons, the decision to opt for the relief is based on gross revenue, irrespective of expenses and profits. Tax losses and interest from previous tax periods cannot be used against profits from the opted period but can be carried forward and utilized in future tax periods when the relief is not availed. However, tax losses from the opted period cannot be transferred to another person. During the opted tax period, reliefs for transfers within a qualifying group and business restructuring transactions are not applicable, and such transactions will be recorded at market value rather than book value.
Tax groups are also eligible to elect for the SBR if their gross revenue does not exceed Dh3 million during the current and previous tax periods. The revenue threshold applies to the tax group as a whole, rather than individual members.
Individuals who opt for the Small Business Relief must maintain records for seven years from the end of the relevant tax period. These records include bank statements, sales ledgers, invoices, daily earnings records (such as till rolls), order records, delivery notes, and other relevant business correspondence. While retaining original records is not mandatory, legible photocopies or scanned copies should be kept.
Businesses should assess their gross revenue and, if eligible, opt for the Small Business Relief to benefit from tax relief and simplified procedures.