The UAE Federal Tax Authority publishes a Corporate Tax Guide on Small Business Relief
As a reminder, Small Business Relief offers a several-fold increase of the tax-free income threshold, however it has a number of limitations. UAE residents are treated as not earning taxable income if their annual revenue does not exceed AED 3 million (~ USD 816,000) in each tax period from June 1, 2023 to December 31, 2026.
The main points of this Guide are summarized below:
- Small Business Relief is not available to Qualifying Free Zone Persons and non-residents of the UAE. A permanent establishment of a foreign company in the UAE is eligible for this relief only if the jurisdiction of incorporation of the parent company has a Double Tax Treaty with the UAE which includes a non-discrimination clause based on the OECD or UN Model Convention.
- The relief can be elected annually by filing a Tax Return after corporate tax registration.
- Residents claiming this relief must retain records and documents for 7 years after the end of the tax period to which they relate.
- Accounting standards: either IFRS or cash basis (but the latter could be challenged by the FTA).
- There is no requirement to maintain transfer pricing documentation (but the arm’s length principle must be observed).
- Revenue calculation for the threshold must include all revenues earned in a relevant tax period.
- The use of this relief does not exclude the use of participation exemption; however, it is not allowed to use business restructuring or intra-group asset transfer relief.
- The AED 3 million threshold applies to a tax group as a single entity regardless of the number of persons in the group.
- It is not allowed to carry forward any tax losses.
- The UAE Federal Tax Authority may perform a tax reconstruction to check for an artificial business separation, which is done with the sole purpose of not exceeding the AED 3 million revenue threshold. The Guide provides an overview of the facts and circumstances that will be considered by the FTA: the existence of a genuine commercial purpose for the business separation, financial independence of the companies, the companies’ having the same customers, office premises, equipment, directors, employees, marketing activities, etc.; and some examples of artificial separation.
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