Simplified Returns for Businesses Choosing Small Business Relief Under Corporate Tax Law

To empower small businesses, the UAE has introduced Small Business Relief as a key provision under its new corporate tax regime. This initiative simplifies the corporate tax framework for small businesses, easing the burden of calculating and paying Corporate tax. It also assists tax consultants in the UAE by reducing the complexity of compliance requirements.

This means that any eligible resident taxable person, whether an individual or a legal entity, with revenue below or equal to AED 3,000,000 in both the relevant and all previous tax periods ending on or before 31 December 2026, can choose to be treated as having no taxable income for that period. As a result, these taxable persons qualify for Small Business Relief and are exempt from calculating taxable income or completing a full tax return.

Since this relief is optional, resident persons who wish to take advantage of it must elect for it within their tax return, which can be a challenging task. To simplify this process and determine eligibility for small business relief, it is advisable to outsource corporate tax services in the UAE.

What is Small Business Relief Under UAE Corporate Tax?

Small Business Relief is a provision in Article 21 of the Federal Decree-Law No. 47 of 2022. This relief ensures that eligible small businesses are exempt from paying corporate taxes during the applicable period. If your business is a UAE resident with revenues less than AED 3 million in a tax period and meets other conditions, then you are eligible for this benefit.

This does not mean that you will not be filing tax returns, rather it does take away the efforts of calculating Taxable Income, you can use the cash basis of accounting to manage your financial statements. Here is a brief overview of Small Business Tax relief:

Eligibility for Small Business Relief

Almost all taxable resident persons can opt for small business relief, with certain exceptions:

Businesses classified as a Qualifying Free Zone Person.
Businesses that are members of a Multinational Enterprise Group (MNE).

Note: A tax group can opt for Small Business Relief if its revenue is below or equal to AED 3,000,000.

Advantages of Small Business Relief

Taxable persons who opt for Small Business Relief can enjoy dual benefits, encompassing both administrative and tax advantages. Administratively, they are not required to calculate their taxable income and can benefit from simplified tax return filing and record-keeping processes. Although record-keeping is still mandatory, tax consultants in the UAE can assist in leveraging the benefit of maintaining financial statements using the cash basis of accounting. On the tax side, they are exempt from paying corporate tax on the income earned during the relevant tax period. Additionally, businesses that choose this relief are not required to maintain transfer pricing documentation for that tax period.

Maximizing the Benefits of Small Business Relief for Zero Corporate Tax

To fully benefit from the available Small Business Relief, it is essential to consult with a top Corporate tax consultant in the UAE, such as YUGA Accounting. Our team can assist you in making the most informed business decisions.

List of Required Documents.

When preparing for any application or process, having the correct documents is crucial. Here is a comprehensive list of required documents a Small Business Relief,

Sales Ledgers
Bank Statements
Other relevant business correspondence
Invoices or other records detailing daily earnings
Order Records and Delivery Notes

Understanding Exempt Income and Its Relation to Small Business Relief:

Exempt income typically includes income from dividends or similar sources and is generally excluded from taxable income. However, under Small Business Relief, the rules for exempt income do not apply. This means that even if the income is not taxable, it will still be included in the revenue calculation for determining eligibility for Small Business Relief.

Consider ABC LLC, a resident entity, which generated sales of AED 2,500,000 during its tax period ending on 31 December 2024. Additionally, ABC LLC received AED 1,000,000 in dividends from XYZ LLC, another resident entity. Although dividend income is exempt and generally not taxable, this provision does not apply when calculating eligibility for Small Business Relief. Thus, both sales and exempt income are included in the revenue calculation.

Consequently, the dividend income will be factored into ABC LLC’s revenue calculation, resulting in a total of AED 3,500,000. As a result, ABC LLC will be ineligible to avail of the Small Business Relief for the tax period ending on 31 December 2024.

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