UAE Extends Corporate Tax Small Business Relief Until End of 2029

The UAE’s Federal Authority introduced a 9% corporate tax on taxable profits above AED 375,000 that came into effect on 01st June 2023. Recognizing the financial burden the tax could place on small entrepreneurs, start-ups, and SMEs during their early years, the SBR was announced.

Under the Small Business Relief scheme, an eligible company can elect to be considered as having zero taxable income for the specific tax period. They do not have to calculate net taxable income and pay the corporate tax. Thus offering freedom from corporate tax liabilities for companies in their budding stage.

The SBR will remain effective for 06 years since its introduction, with its extension to December 31, 2029. This extended window provides companies time to streamline operations, implement a meticulous accounting and auditing system, resolve teething troubles, and scale their business.

Let’s understand what all has changed with the Small Business Relief scheme extension. The basic SBR scheme remains the same as the original, without any amendments to the regulations or tax framework. The extension is the only significant change. Accordingly:

• SBR initial timeline: 01 June 2023 – 31 December 2026
• SBR latest timeline (under the Ministerial Decision No. 131 of 2026) – 01 June 2023 to 31 Dec 2029

The Ministry of Finance has formulated strict criteria for companies to qualify for Small Business Relief, to ensure effective distribution of the tax relief and prevent fraudulent tax-relief claims.

• The SBR is limited only to resident taxable individuals. Limited Liability Companies (LLCs), Free Zone Establishments, and Free Zone Companies registered in the UAE, as well as individual businesspersons operating within the country, are eligible for the scheme. However, non-resident entrepreneurs and foreign companies operating through a permanent establishment in the country are excluded.
• A revenue threshold of AED 3,000,000 has also been included in the SBR. Gross revenue in the relevant tax timeframe, as well as in all previous tax periods, should not exceed AED 3,000,000. This amount includes all the income generated through product sales, services, and distribution of goods, before deducting expenses. Income from secondary sources (if any) also must be added towards the revenue calculation.
• Free zone entities that are utilizing 0% corporate tax benefit by meeting the free zone-specific requirements cannot seek Small Business Relief. Such companies can remain exempt from corporate tax by meeting criteria such as qualifying income, maintenance of adequate substance, and meeting the standard requirements.
• Multinational companies are not entitled to SBR. The privilege is reserved for small companies and businesses operating within the UAE. The MNCs with branches in other countries are automatically excluded from this scheme.
• The Federal Tax Authority (FTA) constantly monitors tax collection, tax filing, and tax data. Fraudulent activities, including division of a business into smaller segments to circumvent the AED 3 million limit, will invite financial penalties and other legal complications. The FTA can consider all divisions of the same business as one towards finalising total revenue. In turn, the business may be required to pay previous years’ corporate tax with interest.

Even if the business is exempted from paying corporate tax, under the SBR scheme, it is subject to FTA’s administrative orders. Non-compliance with administrative requirements, promulgated from time to time, will lead to financial penalties or reversal of the SBR benefits.

You/your business should satisfy the following duties to benefit from the SBR extension:

• Corporate tax registration is mandatory for every business in the UAE that falls under the scope of corporate tax. The subject registration is a must irrespective of the revenue size. Register and obtain the unique Corporate Tax Registration Number (TRN) within the specific timeframe.
• All businesses qualifying for 0% tax under SBR should file a tax return mandatorily. Although the company is not paying corporate tax, FTA can use the tax return to calculate the revenue breakdown. Furthermore, data will confirm that the business remained below the AED 3,000,000 threshold in the specific tax period.
• SBR is not automatically applied to every small business that meets the criteria. You must choose the option to claim SBR while filing the corporate tax return. Click on the SBR option in the FTA portal for the tax period.
• FTA can audit companies periodically or undertake a surprise audit. Every business opting for the SBR must maintain clear, accurate financial records, including bills, ledgers, and bank statements for at least 07 years.

The SBR extension until December 2029 presents many strategic benefits, in addition to the relief it offers.

• Expat entrepreneurs can take advantage of the UAE’s thriving business environment and tax-free ecosystem. The Small Business Relief scheme extension has reduced mid-term fiscal uncertainty, allowing eligible businesses with revenue of up to AED 3 million to benefit from corporate tax exemption.
• The money saved can be used for R&D, scaling the business, hiring skilled manpower, procurement of machinery, or investment in other business sectors.
• Laying out a foolproof accounting and auditing system typically takes time. The SBR extension provides sufficient timeframe to implement a proper corporate accounting structure. Companies can digitize the accounting processes and enhance efficiency.
• Entrepreneurs can repatriate 100% of profit without any currency restriction in specific free zones. Corporate tax relief allows businesses to retain more of their earnings, potentially increasing their profit margin.

The SBR extension until December 2029 is a farsighted decision envisaging a substantial increase in FDI. The UAE Ministry of Finance has introduced a significant financial relief measure for small businesses, start-ups, and SMEs, with the Small Business Relief extension.

Investors can use this opportunity to formulate growth plans, implement a systematic accounting system, expand business operations, and build a sustainable business. The move comes in tandem with the country’s vision of becoming a diversified economy that drives sustainable and sustained growth.

Are you an entrepreneur considering investment in the UAE? Do you want to discuss how to leverage the Small Business Relief extension and grow more? Do you still have doubts regarding SBR?

Reach out to Kiltons if you have queries on SBR or concerns about business setup in the UAE. Kiltons Business Setup Services has experts with in-depth knowledge of business investments to help you.