UAE's Small Business Relief:Dh3m revenue ceiling offers SMEs flexibility on corporate tax journey
SMEs seeking 'relief' get additional period to be CT-compliant, but be careful about GAAR
Dubai: Setting the revenue ceiling at up to Dh3 million will provide significant relief for SMEs to ease their way into the UAE’s Corporate Tax regime, according to industry sources. Equally important is that the tax relief period will be there up to December 31, 2026.
The impression had been that any SME-specific relief would be limited to those businesses with Dh1 million to Dh2 million in annual revenues. The Dh3 million ceiling thus expands the base of businesses that can apply for – and get – ‘Small Business Relief’ on corporate tax.
The procedures to claim the relief are yet to be announced.
But businesses seeking this relief need to brush up on GAAR - or General Anti-Avoidance Rules. Any failure on this score and the concerned SMEs will be running some serious risks.
“The revenue ceiling and the time period offered – of end 2026 – offers a good deal of flexibility for UAE SMEs at a time when there are ongoing concerns about global growth and what it would mean for Gulf/MENA economies,” said a tax consultant based in Dubai. “Several of these SMEs are only emerging out of the Covid shadow, and going through a phase where their cost of operations and the cost of funds are higher.
“They will need that additional year or two to stabilise their operations.”
On Thursday (April 7), the UAE Ministry of Finance announced the various requirements that SMEs must adhere to get the relief. In particular, it states that the Dh3 million revenue threshold applies to tax periods starting on or after June 1, 2023 and continue to apply for tax periods that end before or on December 31, 2026.
"As UAE amped up its compliance framework over the last few years, compliance costs for businesses have been on the rise," said James Mathew, CEO and Managing Partner at the chartered accountacy firm UHY James. "The UAE’s business landscape has an estimated 550,000 plus SMEs operating across the mainland and free zones.
A significant number of companies can leverage the Small Business Relief, where their revenue in the relevant tax period and previous tax periods is below Dh3 million for each tax period.
Get into the details ASAP
“This decision is mainly designed to encourage startup businesses and will be a very appreciated decision,” said Hany Elnaggar, Associate Partner, WTS Dhruva Consultants. “However, it will be available only for short period with some conditions.
“Business needs to be very careful about conditions covered under this decision, especially GAAR (General Anti-Avoidance Rule).
SMEs who qualify for relief can plan and manage their CT by considering no-tax cost for tax periods covered under the decision - but they still need to plan for future periods.
“SMEs who qualify for relief can plan and manage their CT by considering no-tax cost for tax periods covered under the decision - but they still need to plan for future periods.” (GAAR relates to actions taken by businesses purely to offset their real tax obligations. In these cases, it becomes more about tax avoidance.)
Ticking both profit and revenue
The UAE Corporate Tax – which comes into effect from June 1, 2023 – already offers SMEs leeway, by setting the annual taxable income limit at Dh375,000 and above.
“In a way, UAE SMEs are being given top-line and bottom-line cushion on their CT obligations,” said an auditor. “This will be an additional incentive for entrepreneurs to launch their startups in the UAE, because they have clarity on their CT commitments and how it be defrayed.”
What the SBR offers:
- Actual tax savings: Businesses with higher net profit margins will get a certain tax saving along with saving on compliance costs up to end 2026.
- Ease of compliance: Eligible businesses would benefit from not preparing tax computation (deriving taxable profits from book profits) to conclude the tax position for the year. Compliance costs have been on a steady rise and businesses that fall under the purview of the relief can save themselves on additional costs due to this favourable threshold limit.
Getting that Small Business Relief
Based on the wording of the ministerial decision, ‘we understand a taxable person is considered as not having derived any taxable income in the tax period even if income exceeds the threshold prescribed under cabinet decision 116 of 2022 (Dh375,000), if it opts for the Small Business Relief,” said Atik Munshi, Managing Partner at Finexpertiza UAE.
“Resident-persons can opt for the SBR if their revenue for the tax period - both in the assessed tax period and previous tax period - does not exceed Dh3 million. Such tax relief is available, if opted, only up to the tax period ending December 31, 2026.
“Once the resident-person’s revenue exceeds Dh3 million, the assesse cannot claim SBR for future periods.”
All as clear-cut as possible. And for SMEs in the UAE, some major decisions to be made related what they should do for the Relief.