Tax relief for small businesses in the United Arab Emirates

Oracle
25 March 2024
11.42 am

An Introduction to Tax Relief for Small Businesses in the UAE

Small businesses in the United Arab Emirates (UAE) can benefit from a special tax relief. This relief is available only to resident taxable persons or entities whose gross business income is less than 3 million dirhams during the relevant tax period and for all previous periods ending no later than 31 December 2026. The comprehensive guide to these measures, published last September by the Federal Tax Authority (AFT), provides further clarification on their application.

Conditions for eligibility for tax relief

To be eligible for this tax relief, several conditions must be met:

A resident taxable person, including legal entities incorporated in the UAE, legal entities established outside the UAE but controlled and managed from within the UAE, individuals carrying on a trade or profession, and any other person as determined by government decision.
To have gross income from employment not exceeding 3 million dirhams during the current tax year and for all previous tax years.
Not to be a non-resident, including non-resident permanent establishments in the UAE.

However, it is important to note that those benefiting from this tax relief will need to register for corporation tax, comply with the applicable transfer pricing rules and submit a simplified tax return.

Exceptions to the tax relief for small businesses

The tax relief does not apply in certain specific situations. For example:

It is not available to non-resident individuals or entities, including permanent establishments that are not resident in the UAE.
A resident taxable individual is not liable for corporation tax and is not required to register if their income from commercial or professional activities is less than one million dirhams per Gregorian calendar year.

Tax periods in which the reliefs do not apply

During the chosen tax period, the taxpayer may not claim relief for transfers within an eligible group or for corporate restructuring transactions. In such cases, these transactions will be recorded at their market value rather than their book value.

Country-by-country reporting for multinational companies

With regard to multinational companies established in the UAE, the regulations stipulate that they must prepare a country-by-country report if their total consolidated turnover exceeds 3.15 billion dirhams. This report is required under UAE Government Resolution No. 44 of 2020.

In conclusion, it is essential for small businesses based in the United Arab Emirates to understand and comply with the local tax regulations in force. By meeting the criteria set out above, these businesses can benefit from tax relief, enabling them to manage their financial and tax affairs more effectively. However, they must remain vigilant regarding any exceptions and specific requirements relating to their status and activities within the country.