Small Business Relief

Understanding Corporate Tax in the UAE: A Lifeline for Small Businesses:

In June 2023, the UAE introduced Corporate Tax to diversify its economy and align with international tax practices. This progressive tax framework ensures fairness while fostering an environment conducive to growth. For small businesses, it may seem challenging, but there are relief programs to make it easier. This blog sheds light on the Corporate Tax structure and introduces Small Business Relief as a cornerstone for supporting SMEs in the UAE.

What is Corporate Tax in the UAE?

Corporate Tax in the UAE applies to net income generated by businesses, emphasizing transparency and accountability. The current tax rate is set at 9% for taxable income exceeding AED 375,000, while income below this threshold remains tax-free. This dual-rate system ensures minimal impact on smaller enterprises, aligning with the UAE’s commitment to fostering business growth.

Key Features of UAE Corporate Tax:

• Flat Rate: A competitive 9% tax rate on profits above AED 375,000.
• Tax-Free Threshold: Small businesses earning below AED 375,000 are exempt, ensuring minimal burden.
• Tax Credits: Deductions and exemptions tailored for specific sectors and business activities.
• Alignment with Global Standards: Adherence to international tax norms, enhancing credibility.

Introduction to Small Business Relief:

Recognizing the vital role small and medium enterprises (SMEs) play in economic development, the UAE government has introduced Small Business Relief as part of its Corporate Tax framework. This initiative is designed to:

• Reduce Tax Liabilities: Offering simplified compliance and lower tax rates for eligible SMEs.
• Encourage Business Continuity: Ensuring businesses stay afloat and thrive amidst economic challenges.
• Foster Entrepreneurship: Creating a conducive environment for startups and small businesses.

Detailed Eligibility Criteria for Small Business Relief:

Small Business Relief is available to SMEs with annual revenue below AED 3 million, ensuring that only genuinely small businesses meeting this specific criterion can benefit from the initiative.

Taxable persons eligible for and election made for Small Business Relief can benefit from:

• Exemption from calculating taxable income.
• Simplified tax return filing.
• The ability to prepare financial statements using the cash basis of accounting.
• Exemption from paying corporate tax on income earned during the tax period.

Who is Not Eligible for Small Business Relief?

Certain businesses and scenarios fall outside the scope of Small Business Relief, including:

• Exempted Activities: Businesses engaged in sectors like banking, insurance, or resource extraction, which already benefit from other tax exemptions.
• Revenue Exceeding AED 3 Million: Companies with annual revenue above the threshold do not qualify for the relief measures.
• Entities in Free Zones: Companies registered in free zones that are eligible for a 0% tax rate may not qualify for Small Business Relief unless they conduct taxable activities.
• Members of Multinational Enterprise Group (MNE): MNEs are group of companies that operate in more than one country and that have a total consolidated group revenue of more than AED 3.15 billion.
• Failure to Comply: Businesses that fail to meet compliance standards, such as accurate record-keeping or timely submission of tax returns, will be disqualified. 

Compliance Obligations, Record-Keeping Requirements, and Administration for Small Business Relief:

Taxable persons electing for Small Business Relief must meet the following requirements:

• Be registered for corporate tax.
• Elect for Small Business Relief by filing a tax return, with the election to be made for each taxable period.
• File a corporate tax return within the due period, regardless of eligibility for Small Business Relief, even if no corporate tax is due.
• Maintain accurate records and supporting documentation to ensure that income can be readily verified by the Federal Tax Authority (FTA), if required.
• Retain all records and documents for a minimum of seven years following the end of the relevant tax period.
• Should comply the Arm’s length principle on all the transactions.

Why Small Business Relief Matters:

In a competitive marketplace, Small Business Relief provides a safety net for entrepreneurs striving to establish and expand their ventures. Here’s how it benefits SMEs:

1. Financial Stability: Reduced tax burdens enable businesses to allocate resources toward growth and innovation.
2. Ease of Compliance: Simplified tax processes save time and reduce administrative overhead.
3. Encouraging Innovation: Extra funds from tax savings can fuel research and development initiatives.

How Virtual Accountants Can Help:

At Virtual Accountants, we specialize in helping SMEs navigate the complexities of Corporate Tax and Small Business Relief. Our services include:

• Corporate Tax Consultation: Personalized advice on tax planning and compliance.
• Eligibility Assessment: Ensuring you qualify for Small Business Relief and other benefits.
• Ongoing Support: Regular updates on tax regulations and hands-on assistance.