UAE New Corporate Tax Law April 2023 SBR Update Brings Relief for SMBs
There is temporary relief for SMBs as suggested by the latest update released on April 11, 2023 regarding the New Corporate Tax Law UAE. Managing debt has just got easier for SMBs with the UAE’s new tax relief program
The UAE government has been a strong advocate for SMEs since as early as 2014, launching various support initiatives to help this sector flourish.
The most recent measure, “Small Business Relief” (SBR), is set to provide tax exemptions for businesses with an annual revenue of Dh3 million or less, irrespective of actual profits. This generous threshold aims to benefit a wide range of businesses, regardless of size, structure, or industry.
The Duration and Criteria for Tax Relief
SBR is available for financial years ending on or before December 31, 2026, which means that depending on your company’s financial year, you can enjoy tax relief for two to three years.
However, if your revenue exceeds Dh3 million in a financial year, SBR will not be applicable for the remaining financial years, even if your revenue drops below Dh3 million later on.
SBR is open to all resident taxpayers, including individuals and incorporated companies, but is not available to those eligible for free zone tax relief or part of a multinational enterprise group.
Note:Keep in mind that this tax relief is temporary, and businesses established in Q3/Q4 of 2026 or later won’t be eligible unless tax relief is extended in the future.
SBR Eligibility Doesn’t Mean You’re Exempt from Tax Laws
If your business qualifies for SBR, it doesn’t exempt you from complying with corporate tax laws. You’ll still need to register for corporate tax, file an annual tax return, and maintain detailed accounts and records.
These documents will help the Federal Tax Authority (FTA) assess your SBR eligibility during audits conducted within the next seven years.
There’s no need to seek prior approval from the FTA for tax relief, as the annual tax return will include an option to select SBR. Small businesses can also enjoy certain tax compliance reliefs, such as exemptions from transfer pricing documentation requirements.
The Pros & Cons of Adopting SBR
Although SBR may seem advantageous at first glance, it’s crucial to assess whether it’s the right fit for your business. You cannot blindly go with what everyone wants to do – it is important to consult this with your Corporate Tax Consultant carefully to see if this is what your business needs.
In fact, not opting for SBR requires compliance with all tax regulations, including domestic transfer pricing and benchmarking salaries for owners, directors, and their relatives at arm’s length.
On the flip side, choosing SBR could limit your ability to carry forward tax losses and excess interest expenditure if your company faces tax losses or has a net interest expenditure exceeding 30%.
So choose wisely and proceed with expert financial consultation.
Can You Divide Your Business into Smaller Entities?
It is logical that any Small Medium Business owner might contemplate dividing his company into smaller entities to keep revenues below Dh3 million and remain eligible for SBR. But, tread with caution because there is a catch.
The FTA may investigate situations where businesses are artificially separated and have a combined revenue exceeding Dh3 million.
If found, the FTA will deny tax relief under anti-abuse rules and impose penalties.
The FTA will examine financial, economic, and organizational links to determine whether multiple entities owned by the same person, family members, or a third party are conducting substantially the same business.
So it’s not really that simple!
Navigating Practical Challenges
Determining whether a business has been split into multiple entities under anti-abuse rules can be difficult, as it’s uncertain if factors like economic activity codes or business location will be considered.
For instance, it’s unclear if trading different types of furniture or separating manufacturing and retail activities will be viewed as separate or similar businesses.
Similarly, there’s no clarity on how services provided by audit firms, corporate service providers, or businesses with multiple locations will be classified.
Business owners must wait for further FTA guidance and tax policy developments before making decisions. The goal of small business tax relief is to support start-ups and SMEs, and it’s important for businesses to adhere to this spirit in both substance and form.
In the current scenario, it makes sense to wait; however, it also makes sense to have all your compliances in place too well in advance.
Make the Most of UAE’s Small Business Relief for Your SME
The UAE’s new Corporate Tax Law offers SMEs a valuable opportunity to thrive under the Small Business Relief program. This temporary tax relief can help your business manage debt and grow more efficiently. However, it’s essential to carefully evaluate if SBR is right for your company and maintain compliance with tax laws.
Staying informed and adhering to the spirit of the tax relief program, your SME can make the most of the support offered by the UAE government.
Keep an eye out for further guidance from the Federal Tax Authority to ensure your business stays on the right track.