Despite its complex and dynamic tax system, the business-friendly status of the United Arab Emirates is widely recognized. With the implementation of Corporate Tax and Value Added Tax (VAT), the UAE not only ensures regulated tax policies but also employs significant relief options for small enterprises. In this comprehensive guide, we’ll explore the relief measures offered for small businesses in Corporate Tax and VAT, empowering entrepreneurs to make informed decisions and navigate financial challenges with ease.
Corporate Tax & Small Business Relief in the UAE
The UAE business landscape shifted with the introduction of corporate tax by the UAE Ministry of Finance on 1 June 2023. Corporate Tax is a direct tax levied on the company’s profits or income. The 9% Corporate Tax rate of the UAE has been levied only on businesses whose taxable income exceeds the threshold of AED 375,000, and these businesses must register for Corporate Tax. Businesses whose taxable revenue is less than AED 375,000 will be subject to a 0% rate. In addition to a low Corporate Tax rate of just 9%, certain relief have also been provided, including exempt sectors like public benefit entities and small businesses.
If a business wants to elect for small business relief, it is essential to consider the applicable eligibility criteria, accounting standards, and compliance requirements.
- Eligible Entities for Small Business Relief
To elect for a small business relief, a business must have a revenue of less than or equal to AED 3 million in the relevant tax period and any previous tax period, and the Person must be a Resident Person for Corporate Tax Purposes. This threshold is applicable to all tax periods that begin on or after 1 June 2023 and end before or on 31 December 2026.
Businesses that want to benefit from the small business relief and meet the required conditions must first register for Corporate Tax and make an election for small business relief in their Tax Return. This election should be made for each Tax Period that a Tax Return is filed for the relief to apply for that Tax Period.
- Impact on other Corporate Tax Rules:
Any disallowed Net Interest Expenditure and Tax Losses can be carried forward to future tax periods in which Small Business Relief is not elected by the business.
Value Added Tax (VAT) & Voluntary Registration for Small Businesses in UAE
Value Added Tax (VAT) was introduced in the UAE with the aim of diversifying income sources and providing high-quality public services. VAT is an indirect consumption tax on goods and services and is levied on the price of a product or service at each stage of the supply chain. The cost of VAT is borne by the end consumers, while businesses act as tax collectors for the government by collecting and accounting for VAT. 5% is the standard VAT rate in the UAE. However, some sectors have been exempted from the VAT, while some are subjected to a 0% rate. A small business can voluntarily register for VAT, keeping in mind the eligibility criteria and compliance with VAT regulations.
- Eligibility criteria Voluntary Registration of Small Businesses
UAE-based businesses whose taxable supplies and imports exceed AED 375,000 per annum are mandated to register for VAT. However, businesses are eligible to voluntarily register for VAT in UAE if their yearly taxable revenue exceeds AED 187,500.
Hence, small businesses or startups with taxable revenue exceeding AED 187,500 can consider voluntary VAT registration to avail the benefits associated with it and reflect their firm as reputable.
- VAT Registration:
The Federal Tax Authority has facilitated VAT Registration with an online process. Businesses that want to register can create and activate an EmaraTax account through FTA’s website. The required documentation, including financial statements and trade licenses, must be prepared for the initial process of VAT registration.
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