It is essential to understand the meaning of revenue to claim small business relief under UAE Corporate Tax Law.

Revenue v. Profit:

In accounting, revenue represents the total income earned during a specific tax period, often referred to as gross income. It includes all income accrued from various sources. Profit, on the other hand, is the difference between revenue and expenses, indicating the net income or gain.

• Small Business Relief Eligibility:
  Under UAE corporate tax law, eligibility for small business relief is based on revenue, not profit. This means that a company’s gross income, or revenue, is the key factor in determining whether it qualifies for SBR.

Revenue Computation for Small Business Relief:

For companies engaged in the sale of goods, revenue is the money received from the sale of these goods. It constitutes the gross income before deducting expenses.

Arm’s Length Principle:

To calculate revenue accurately, the arm’s length principle is applied. This principle ensures that transactions with related parties or connected persons are accounted for as if they were conducted between unrelated parties. The goal is to prevent understating revenue and overstating expenses.

Threshold Limit:

Once financial statements are prepared using the arm’s length criteria, it’s essential to determine if the revenue meets the threshold limit. In many cases, this threshold limit is set at 3 million AED.

Differentiating Revenue and Profits:

It’s crucial to differentiate between revenue and profits when considering eligibility for small business relief. While profits are essential for business management and taxation, small business relief eligibility is solely based on revenue.

Key Point:

Eligibility for small business relief under UAE corporate tax law hinges on a company’s revenue, which is the gross income earned during a tax period. Applying the arm’s length principle ensures accurate revenue computation, and the threshold limit, often set at 3 million AED, determines eligibility for this relief. Profits, though related, are not the primary factor in determining eligibility for small business relief; revenue takes precedence.

Practical Case Study

XYZ LLC is a engaged in the sale of electronic gadgets, operating in a UAE Mainland. XYZ LLC is interested in understanding its eligibility for small business relief under UAE corporate tax law. It earns a profit of AED 2.9 million while a revenue of AED 3.1 million.

Key issues

1. Is there a difference between the revenue and profit earned by XYZ LLC?
2. Will XYZ LLC be able to avail the small business relief?

Solution

• Revenue or Profit: Which should be considered? As per the UAE Corporate Tax Law, Small Business Relief Guide and various decisions, for computing the threshold limit for SBR, it is revenue which needs to be considered and not the profit.
• XYZ LLC: Claiming Small Business Relief? Since the revenue threshold of XYZ LLC is above AED 3 million, it would not be able to claim SBR even though the profit is below AED 3 million, i.e. AED 2.9 million.

Conclusion

The case of XYZ LLC highlights the importance of understanding that small business relief eligibility under UAE corporate tax law is primarily based on revenue, not profit. Accurate revenue computation, adhering to the arm’s length principle, is crucial in determining eligibility for this relief, even for small businesses engaged in various sectors like the sale of electronic gadgets.