UAE corporate tax: Small businesses get clarity on relief - and interest expenses

Dubai: Small businesses in the UAE planning to sign up for a corporate tax relief program have got extra clarity on what they should be doing with their interest expenses.

The UAE has allowed those companies with revenues of or under Dh3 million in any of the years between 2024 to 2026 to opt for the ‘Small Business Relief’ program. In doing so, they do not come under the corporate tax framework for the period up to end December 2026.

Now, the second part can be quite useful for small businesses seeking corporate tax relief.

“Let’s assume the SME decides not to sign up for SBR for the 2024 tax period, but has incurred interest expenses for the period,” said Girish Chand, Senior Partner at MCA Gulf. “They can still access the SBR relief for 2025 and 2026 – but the interest expenses unclaimed in 2024 cannot be claimed during these two years.

“However, they can carry forward that expense from 2024 into tax periods after 2026.”

In fact, according to the FTA (Federal Tax Authority), the SME can carry forward that disallowed net interest expenditure for up to a further 10 tax periods.

The UAE, whose corporate tax is set at 9% across the board, introduced the Small Business Relief program to help SMEs ease their way into the tax framework. And do so without impacting on their financials as long as the Dh3 million a year revenue threshold is not breached.

“While SBR offers administrative ease, SMEs should carefully assess their profitability before making the choice to sign up,” said Mustaq Khatri, CEO of mkACE Management Consultancy.

“Electing for SBR also means forfeiting the ability to carry forward tax losses to offset future profits.

“In such cases, loss-making SMEs might benefit more from not opting for SBR, allowing them to utilize tax losses in subsequent profitable periods. Conversely, profitable SMEs may find SBR advantageous to reduce immediate tax liabilities.”

“Interest expenses are generally allowed as deduction while calculating a business’s taxable income for that tax period,” said Chand.  

“However, the deductibility of interest for corporate tax purposes is not without limits. It includes interest income and interest expenditure that typically represents amounts paid for use of money or credit, and other associated costs.

“Taxable persons will be required to identify what constitutes ‘Interest’ based on the definition provided under the corporate tax law rather than what constitutes interest under IFRS (or IFRS for SMEs).