April 2023

The United Arab Emirates (UAE) is known for its towering skyscrapers, luxurious shopping centers, and extravagant lifestyle. However, behind this glitz and glamour lies a bustling ecosystem of small businesses that fuel the nation’s economy. The UAE government recognizes the importance of entrepreneurship and has implemented various initiatives to promote small business growth. From tax incentives to funding opportunities, the UAE is creating an environment that empowers entrepreneurs to turn their ideas into successful ventures. The UAE has been unwavering in its efforts to promote and support small business establishments for a considerable period of time. It has served as a source of inspiration and optimism for countless individuals seeking to enter the realm of international business. However, the UAE’s transition from an oil-producing economy to a global business hub has not been without its challenges. To encourage the general populace to establish business setup in Dubai, the UAE government has introduced a variety of benefits and regulations. Since 2014, the UAE government has introduced a national program to develop, support and encourage the SME sector. The UAE government’s national program introduced in 2014 aims to develop, support and encourage small and medium-sized enterprises (SMEs) in the country. The Emirates Development Bank offers funding, advisory services, and business development programs to SMEs, while the establishment of free zones throughout the country provides tax incentives and other benefits to attract foreign investors and entrepreneurs. The latest corporate tax relief – referred to as ‘Small Business Relief’ (SBR) – provides yet another support to the SME sector including start-ups. In this article, we will discuss more about the recent UAE Tax implications. More about Small Business Relief (SBR) The UAE Ministry of Finance has announced a new measure to ease the compliance burden associated with corporate tax for small businesses. Ministerial Decision No. 73 of 2023 on Small Business Relief under the UAE Corporate Tax Law aims to provide support to start-ups and small businesses with limited resources. This measure is designed to help alleviate the tax compliance costs that can place a significant strain on small business setup in Dubai, enabling them to focus on their operations and growth. The decision underscores the UAE government’s commitment to fostering a supportive environment for small business setup in UAE and promoting entrepreneurship in the country. Under the newly issued Ministerial Decision No. 73 of 2023 on Small Business Relief, small businesses in the UAE with an annual revenue of up to Dh3 million will be exempt from paying corporate tax, effective from June 1, 2023. This threshold is significant as it is not dependent on the company’s ownership structure, number of employees, or business type, allowing a broad range of small businesses to benefit from the exemption. The decision aims to ease the financial burden of corporate tax compliance for small businesses and start-ups, allowing them to allocate resources towards further growth and development. This measure aligns with the UAE government’s efforts to support and encourage the growth of the SME sector, which plays a vital role in driving the country’s economic development. Limitations of SBR Small Business Relief has introduced significant measures to support small businesses in the UAE with their tax compliance obligations. However, it is important to note that the relief has some limitations. The SBR is not available to qualifying free zone persons or members of multinational enterprises (MNEs) with consolidated group revenues exceeding Dh3.15 billion. This ensures that the SBR targets small businesses and start-ups that require support in meeting their tax compliance obligations. Furthermore, if a taxable person’s revenue exceeds Dh3 million in a financial year, they will no longer be eligible for SBR for the remainder of that year and subsequent years, even if their revenue falls below the threshold in subsequent years. However, the relief is available to all ‘resident persons,’ whether they are incorporated companies or individuals. The decision underscores the UAE government’s commitment to supporting and encouraging the growth of small businesses in the country. By easing the financial burden of corporate tax compliance, the SBR will enable small businesses to allocate resources toward growth and development. It is important to note that certain individuals, such as those who qualify for free zone tax relief or are part of a multinational enterprise group, may not be eligible for the tax relief in question. Furthermore, it is crucial to keep in mind that the availability of this tax relief is not a constant feature of tax laws and is subject to change. As such, any new start-ups or small and medium-sized enterprises (SMEs) established after Q3/Q4 of 2026 may not be eligible unless the tax relief is extended in the future. SMEs and entrepreneurs should stay informed about changes to tax laws that may affect their eligibility for tax relief and plan accordingly to avoid any potential financial setbacks. How does it work? It’s important to note that even if your business is eligible for Small Business Relief (SBR), corporate tax laws will still apply. This means that you’ll need to register for corporate tax, file annual tax returns, and keep detailed records and documents. Maintaining comprehensive accounts will help the Federal Tax Authority evaluate your eligibility for SBR in the event of an audit within the next 7 years. However, formal prior approval from the FTA is not necessary to receive tax relief, as the annual tax return includes an option to elect for SBR. In addition to the 9% tax relief on actual profits, small businesses may also be eligible for certain reliefs from tax compliance, such as transfer pricing documentation. These benefits can greatly assist small businesses in managing their tax obligations and maximizing their profits. What if SBR is not claimed? When UAE resident taxable persons claim Small Business Relief during a specific tax period, they may not be eligible for certain deductions or reliefs during that same period. As a result, some business setup in Dubai may find it more advantageous not to claim Small Business Relief, even if they qualify,