INTRODUCTION
The UAE corporate law brought about a relieving provision for small businesses by virtue of Article 21 – Small Business Relief. The intention was to reduce the compliance burden on small businesses and with easier implementation of corporate tax regime. The provisions of corporate tax are applicable to financial years commencing on or after 1st June, 2023 and therefore, it is essential for small businesses to be aware about these provisions and understand its applicability and limitations based on their business models.
APPLICABILITY
SBR can be applied by a business where the revenue for the relevant tax period and previous tax periods is below or equal to AED 3 million in each tax period.
Revenue is defined as the gross amount of income earned during a tax period. Revenue should be determined based on arm’s length principle. Revenue is different from Profit (Revenue – All Costs). The amount of profit a business makes does not have an impact on its eligibility for SBR. As long as the revenue threshold is met, SBR continues to apply.
NON-ELIGIBILITY
Following persons are not eligible to apply for SBR:
- Constituent Company of a Multinational Enterprise Group*
- Qualifying Free Zone Person
*Consolidated Revenue of 3.15 billion AED with operations in more than one country and are required to prepare a Country-by-Country Report under the UAE’s Country-by-Country Reporting legislation.
ADVANTAGES
Having satisfied the threshold, the benefits that will be available are:
- Simplified tax return
- Preparation of financial statements on cash basis
- No requirement to maintain transfer pricing documentation
- No requirement to pay corporate tax on income earned during the relevant tax period
DISADVANTAGES
If an election to SBR is made in a tax period, certain provisions are disabled as followed:
- Cannot carry forward or utilise tax losses and excess interest expenditure for relevant tax period
- Cannot apply for tax reliefs for transfers within a Qualifying Group or for business restructuring transactions
SUNSET CLAUSE
The benefit of SBR will continue only up to tax periods end on or before 31st December, 2026.
OTHER IMPORTANT POINTS
- SBR is an optional relief and person can opt for this relief within their tax return. Additionally, the FTA may request for information to demonstrate the eligibility of SBR.
- Where it is established by the FTA that a person has artificially separated its business into more than one entity only to satisfy the threshold for SBR, the person will have to pay the unpaid corporate tax and any penalties that may be charged.
- Where a Natural Person derives income from business above the AED 1 million threshold during a Gregorian calendar year, he will be subject to corporate tax and will be required to register for Corporate Tax. In this case, he may be able to claim SBR if the requirements are met.
- The rules of Exempt income are not applicable to businesses that have elected for SBR. Therefore, such income, even though not taxable, should also be considered while calculating the revenue threshold for SBR.
PROCEDURE
- The first step is to obtain registration and TRN with the Federal Tax Authority (FTA).
- While filing tax return, elect for SBR to benefit from the relief.
- The election must be made for each tax period that a tax return is filed.
LEGISLATIVE REFERENCE
- Small Business Relief for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
- Ministerial Decision No.73 of 2023
CONCLUSION
The provisions for SBR are relaxing and welcome, but compliance conditions are required to be met. Businessmen must do a cost-benefit analysis on whether to elect for SBR or not accordingly.
ABOUT THE AUTHOR
CA Jini Jain
The article has been written by CA Jini Jain. Jini is a Chartered Accountant with over 7 years of experience in FEMA, International tax & Transfer Pricing. She is associated with GBCA Bookkeeping & Accounting Est. which offers comprehensive end-to-end services across Corporate Tax & Transfer Pricing, VAT, ESR, Business set up & support services.
Disclaimer:
This article is authored by CA Jini Jain. The following article represents the views and opinions of the author alone and does not reflect the official stance or opinions of Sorting Tax or its owners. We do not take responsibility for any claims, statements, or opinions expressed in the article. Any information or advice provided in article should be independently verified by readers, and they should exercise their own judgment when applying or relying on such information.
