STOCK Corporate tax / Tax
The UAE Small Business Relief scheme is clear-cut - if the business generates revenues of under Dh3 million, it's eligible. And the relief period would extend to end 2026. That's ample time. Image Credit: Shutterstock

Dubai: As the UAE Corporate Tax goes live, small businesses with revenues under Dh3 million can apply for tax relief up to end 2026. The ‘Small Business Relief’ was one of the standout features announced by the Ministry of Finance in recent weeks, by extending the free-from-tax status for those meeting the norms.

Applying for the relief status is pretty straight-forward, industry sources say. Of course, the submissions for being granted relief should be done through the Federal Tax Authority (FTA).

“SMEs incorporated as private companies are allowed to register,” said Dr. Nabeel Ahmed of DVS Management Consultancy. “However, corporate tax registration for other categories - such as natural persons conducting a business or ‘business activity’ - and who would want the Small Business Relief will be as specified by a Cabinet decision at a later date.

“There is a user manual provided on the corporate tax registration on the FTA website to ease the process of registration.”

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Coming under the revenue threshold

Entities with revenues of under Dh3 million are eligible to apply. The Ministry has given a three-year timeframe extending to December 31, 2026 where the relief will remain in place.

Article 2 of The Ministerial Decision No. 73 of 2023 on Small Business Relief is clear. It states the taxable person’s revenue threshold for the relevant tax period and previous tax periods shall be Dh3 million for each tax period.

- Dr. Nabeel Ahmed of DVS Management Consultancy

According to tax consultants, businesses that are eligible but do not sign up for the relief have the option to carry forward their incurred tax losses for the tax period covered under the SBR scheme. That is from June 1, 2023 to end 2026.

What a business owner should not do for SBR
Anyone opting for the Small Business Relief would have to bear in mind that should a taxable person intentionally separate a business solely to meet the threshold of Dh3 million (or under) with the intention to avoid the tax liability, then the Federal Tax Authority can make compensating adjustments to that business's corporate tax liability.

Only for ‘resident persons’

The small business relief is only open for UAE entities that are ‘resident persons’ and conducting a business in the UAE. Free zone based operations do not come under the purview.

Freelancer operations

Among the recent announcements by the Ministry of Finance, one related to the tax on businesses conducted by individuals, cutting across professions. If the individual generates revenues of Dh1 million plus, then the corporate tax kicks in.

This had led some consultants to suggest these one-man businesses/freelancers should consider opting to be licensed as a company. And if their annual revenues come under Dh3 million, then apply for Small Business Relief.

Ahmed says such decisions should be taken looking at the bigger picture. “If the freelance model is scalable over the next one or two years, or if the individual sees an upward trajectory in revenues, then getting licensed as a full-fledged commercial entity should make better business sense.

“A cost-benefit analysis and impact assessment needs to be done by these individuals to assess which model works best.

“The Cabinet Decision No. (49) of 2023 provides that businesses or activities conducted by a resident or non-resident shall be subject to corporate tax only where the total turnover derived exceeds Dh1 million.

“The Small Business Relief is valid starting June 1, 2023 to 31 December 2026.”