Small Business Relief Benefits Until 31st Dec 2029

Small Business Relief (“SBR”) is an optional relief available to eligible Resident Persons under Article 21 of the UAE Corporate Tax Law. Where SBR is elected, the Taxable Person is treated as having not derived any Taxable Income for that Tax Period. Accordingly, no Corporate Tax is payable for that Tax Period. 

Eligibility for Small Business Relief

A Resident Person may elect for SBR where:

• Its Revenue does not exceed AED 3 million in the relevant Tax Period and each previous Tax Period. 

• The relief is available for Tax Periods commencing on or after 1 June 2023 and ending on or before 31 December 2029. 

• SBR is not available to a Qualifying Free Zone Person (“QFZP”). 

• SBR is not available to a member of an MNE Group who is required to prepare a Country-by-Country Report (“CbCR”), generally where consolidated group revenue is AED 3.15 billion or more. 

• The AED 3 million threshold is based on Revenue and not profit. 

Treatment of Tax Losses 

• A Tax Loss arising in a Tax Period in which SBR is elected cannot be carried forward to future Tax Periods. 

• A Tax Loss arising in an earlier Tax Period in which SBR was not elected can continue to be carried forward. 

• Such brought-forward Tax Loss cannot be utilised during an SBR period, but may be utilised in a future Tax Period in which SBR is not elected, subject to the normal Tax Loss rules. 

• The same principle applies to disallowed Net Interest Expenditure arising in prior Tax Periods. 

Transfer Pricing and Arm’s Length Principle 

• Where SBR applies, the Taxable Person is relieved from the prescribed Transfer Pricing documentation requirements, such as maintaining a Local File or Master File. 

• However, SBR does not provide an exemption from the arm’s length principle. 

• Transactions with Related Parties and Connected Persons must therefore continue to comply with the arm’s length principle, even where SBR is elected. 

Other Corporate Tax Reliefs and Deductions

• Where SBR is elected, the Taxable Person cannot benefit from other Corporate Tax exemptions, reliefs or deductions for that Tax Period. 

• Accordingly, the decision to elect for SBR should be considered based on the overall Corporate Tax position and not only the immediate benefit of having no Taxable Income. 

Example: 

ABC LLC incurred a Tax Loss of AED 400,000 in FY2024 and did not elect for SBR. The AED 400,000 Tax Loss is therefore eligible to be carried forward. 

In FY2025, ABC LLC’s Revenue is AED 2 million, so it is eligible for SBR and elects for it. ABC LLC is treated as having no Taxable Income for FY2025. Therefore, the AED 400,000 brought-forward Tax Loss cannot be utilized in FY2025, but it is not lost and continues to be carried forward in future years. 

In FY2026, ABC LLC’s Revenue increases to AED 4 million. Since its Revenue exceeds AED 3 million, SBR is no longer available. ABC LLC calculates its Taxable Income under the normal Corporate Tax rules and can utilize the AED 400,000 brought-forward Tax Loss, subject to the normal Tax Loss rules. 

If ABC LLC had instead incurred the AED 400,000 Tax Loss in FY2025 itself while electing for SBR, the loss would not have been available for carry-forward. 

Key Takeaway

SBR provides a significant Corporate Tax benefit to eligible small businesses by treating them as having no Taxable Income for the relevant Tax Period.  

However, the decision to elect for SBR should be made after considering the overall tax position, particularly the treatment of current-year and brought-forward Tax Losses, disallowed Net Interest Expenditure, and other available Corporate Tax reliefs or deductions. While SBR reduces certain compliance requirements, the arm’s length principle and record-keeping requirements continue to apply. 

Agile Vertex Advisory Can Assist in your Tax compliances  

 Contact us: contact@agilevertexadvisory.com 

+971 588073409 

www.agilevertexadvisory.com