UAE Corporate Tax: What small businesses must do to get 3-year tax relief
Businesses with revenues under Dh3m look at pros and cons of applying for tax break
Dubai: With corporate tax registrations in the UAE picking up serious speed, small businesses in sectors such as F&B, relatively new startups, and those offering technical services are starting to give serious thought on how to get the tax relief allowed for them.
While announcing its corporate tax framework, the UAE gave a major impetus under its ‘Small Business Relief’ program. Companies that generate less than Dh3 million over their financial year are eligible to apply for this tax break, which extends up to end 2026.
Small business owners are already talking to their auditors and tax consultants to see how to get the tax break if found eligible. The best part for these companies is that the SBR will not factor in the profit that is being generated. So, even if the net profit is over Dh375,000 for the tax year, they still don’t have to pay the9 per cent up to 2026.
“My F&B business has been operating for only 2 years and we are still under the Dh3 million threshold,” said a restaurant owner. “Any tax relief would be helpful at this stage because our operating expenses are high. If we get the Small Business Relief, we could consider using those savings to go for a second location and still remain under Dh3 million.”
The best businesses can do at this stage is to assess whether they are likely to be eligible for SBR based on expected turnover
What should small businesses do now?
For now, they have to wait to apply SBR as they can do that only when they file their first tax returns. That, of course, depends on their financial year, whether it’s a straight annual year (January to December), or whether it runs from April 1 to March 31 of the following year, or June 1 to end May of the next year. (The vast majority of companies in UAE prefer January to December as their financial year.)
“Given the earliest tax period a business likely is for June 1, 2023 to May 31, 2024 period, the first tax returns are just being filed,” said Nasheeda, founder of the Dubai-based audit firm Nishe.
“This means it is too early to start seeing SBR in action.
“The best businesses can do at this stage is to assess whether they are likely to be eligible for SBR based on expected turnover.
“You might also want to assess whether you are going to be profitable or loss-making during that period.
“This is because you lose the right to apply the tax loss relief for the years you apply SBR. There is an important choice to make here.”
Number crunching
Nasheeda provides some scenarios that businesses could look into.
Assume the business has a turnover of Dh2 million, Dh2.5 and Dh3.5 million for 2024, 2025 and 2026 respectively.
“You are eligible to opt for SBR for both 2024 and 2025,” said Nasheeda. “Now, let’s say the business has a loss of Dh400,000 in 2024, a profit of Dh500,000 in 2025 and a profit of Dh1 million in 2026.
“In this instance, if you elect not to apply SBR in 2024, then you can carry forward the loss and adjust it against the profit in 2026, reducing your taxable profit for 2026 to Dh600,000. In 2025, by applying SBR, you don’t pay any taxes on your profit for that year.”
Whatever the business gets to save is money that can go to meet capex, pay down any loans, or whatever use the owner has in mind.
First, register for tax
The UAE Federal Tax Authority has been consistent in trying to get companies to meet their registration deadlines. In the meantime, new companies are getting licenses, which means they are adding to the corporate tax base in the country.
A small business can elect to use the ‘cash basis of accounting’. That means your income is booked when it actually receives the amount. This will be another relief under SBR
Whether existing or new, these businesses need to register for corporate tax purposes.
“Even if a company is eligible for Small Business Relief, they still need to register for corporate tax and file a ‘simplified’ tax return,” said Sumayya Zain, Managing Partner, Hallmark International Auditing of Accounts.
“Businesses can elect for SBR as soon as they file the tax return.
“Once this is made, they can complete a simplified tax return (instead of full tax return) and benefit from the relief. There are also other administrative reliefs on record-keeping requirements and the ability to prepare financial statements using the ‘cash basis of accounting’.”
What businesses must keep in mind
- Carry forward of losses are not allowed if they elected for SBR.
- Artificial splitting of revenue will be treated as abusing the corporate tax rule. For example, splitting the revenue among two businesses in the same area.
- They cannot claim other benefits like business restructuring relief or transfers between qualifying groups.
“Before applying for relief, businesses need to assess year by year whether it is advantageous to claim the relief or not,” said Sumayya.