UAE corporate tax: Small businesses can opt for tax relief and submit simplified tax return

The UAE government has provided a privilege, called the Small Business Relief (SBR), to small businesses in the UAE to ease the implementation of corporate tax. This relief is only available to resident taxable persons – either a natural or juridical, with a gross business income of up to Dh3 million in the relevant tax period and any previous tax periods that ends on or before December 31, 2026.

The Federal Tax Authority (FTA) issued a comprehensive Corporate Tax Guide on the Small Business Relief (CTGSBR1) last week, providing more clarity on the application of the UAE Corporate Tax Law to small businesses.

As required by article 21 of the law, if the gross income of the resident taxable person does not exceed a threshold set by the Minister (Dh3 million set through the Ministerial Decision No. 73 of 2023 issued on April 03, 2023), in the current and any previous tax periods, the taxable person may elect to be treated as not having derived any taxable income; and the provisions for the tax losses, tax relief, exempt income, deductions, interest limitations rules and transfer pricing documentation will not be applicable to such taxable persons but the person will be liable to register for corporate tax, follow the transfer pricing rules to establish the arm’s length price; and submit the simplified tax return.

This freedom is not available to the Qualified Free Zone Person (QFZP) and the person that is part of the Multinational Enterprise (MNE) group. QFZP is a juridical person registered in the free zone and meet all related six conditions; and MNEs are groups of companies that operate in more than one country and that have a total consolidated group revenue of more than 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.

As given in the law and explained in the CTGSBR1, the SBR is only available to the resident persons that include (i) the juridical person incorporated in the UAE, including free zones businesses, (ii) the juridical person established out of the UAE but controlled and managed from the UAE, (iii) any natural person who conducts a business or business activity in the UAE and (iv) any other person determined in a decision issued by the Cabinet. The SBR is not available to the nonresident persons that with exception, include the permanent establishment of the non-resident person in the UAE.

The gross amount of Dh3 million includes revenue from all business and business activity of the resident person, and it includes the revenue earned from the UAE and out of the UAE. Moreover, if the resident person is earning any income from the sales of the assets, the whole sales proceeds will be considered to calculate the above threshold. It doesn’t matter whether the person is earning income from exempt sources or taxable sources; all income will be included. If there is any fragmentation; the FTA will consider the individual facts and circumstances, along with financial, economic, and organisational links to assess the commercial sense and genuine separation.

The natural resident person is not liable to corporate tax and even, not liable to register for corporate tax if their income from business and business activity is upto Dh1 million within the Gregorian calendar year. Where their income from business and business activity is upto Dh3 million, they can opt for SBR if they meet the requirements of the SBR. While calculating above mentioned threshold of Dh1 million and Dh3 million; the income from wages, personal investment and real estate investment shall not be considered.

The SBR is an optional relief available to eligible resident taxable persons at the time of submitting of their returns. Even after opting for the SBR, the taxable person is required to register and submit a simplified tax return. The taxable person will not be obliged to calculate its taxable income; and submit the full tax return. Those who opt for the SBR are not liable to pay any corporate tax for the financial years ending on or before December 31, 2026.

For eligible persons, the decision to opt for the CBR is based on the gross revenue, regardless of their expenses and profit. Previous period tax losses and interest cannot be utilised against the opted tax period profits. However, they can be carried forward and utilised against future tax period profits when the resident person is not opting for the SBR. Tax losses and interest expenses of the opted period cannot be accrued to be adjusted against the future profits; and opted period tax losses cannot be transferred to any other person. During the opted tax period, the taxable person cannot apply reliefs for transfers within a qualifying group and for business restructuring transactions, so such transactions will be recorded at the market value instead of the book value.

A tax group is also eligible to elect for the SBR if its gross revenue is equal to or below Dh3 million during the current and previous tax periods. For a tax group, the revenue threshold for SBR will apply to the tax group, rather than to each individual member of the group.

The person who opted for the SBR needs to maintain the record for seven years from the end of the relevant tax period to which the documents pertain. This record includes bank statements, sales ledgers, Invoices, or other records of daily earnings, such as till rolls; order records and delivery notes; and other relevant business correspondence. Retaining the original record is not mandatory but photocopies, and scanned copies can be kept in a legible format.

Business should assess their gross revenue, and those who are eligible and meet the criteria, they should opt for SBR to enjoy tax relief.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official opinion of the Khaleej Times but an opinion of the writer and it should not be considered a formal advice. For any queries/clarifications, please write to the writer at mahar@kresscooper.com.

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