With corporate tax registrations gaining momentum in the UAE, small businesses, particularly in sectors like F&B, new startups, and technical services, are closely examining how they can benefit from the tax relief available to them.
Under the UAE’s ‘Small Business Relief’ (SBR) program, companies generating less than Dh3 million annually are eligible for a tax break until the end of 2026.
Small business owners are now consulting with auditors and tax advisors to determine if they qualify for this relief. The SBR program is particularly advantageous as it doesn’t consider net profit. This means even if a company’s net profit exceeds Dh375,000 in a tax year, they won’t be required to pay the 9% corporate tax until 2026.
A restaurant owner, who has been in business for two years and remains under the Dh3 million threshold, expressed optimism about the relief. “Any tax relief would be a big help at this stage because our operating expenses are high. If we secure the Small Business Relief, we could use those savings to expand to a second location and still stay within the Dh3 million limit,” the owner said.
Next Steps for Small Businesses
Businesses will need to wait until they file their first tax returns to apply for the SBR, which depends on their financial year. For many companies, the financial year runs from January to December, but others may have different timelines, such as April 1 to March 31 or June 1 to May 31. The earliest tax period for many businesses is likely to be from June 1, 2023, to May 31, 2024, with returns just starting to be filed.
Nasheeda, founder of the Dubai-based audit firm Nishe, advised that it’s still early to see the SBR in full effect. She suggests that businesses should assess their eligibility based on expected turnover and consider whether they are likely to be profitable or loss-making during the period.
Strategic Financial Planning
Nasheeda outlined potential scenarios for businesses to consider. For example, if a business has turnovers of Dh2 million, Dh2.5 million, and Dh3.5 million for 2024, 2025, and 2026 respectively, they could opt for SBR in 2024 and 2025. If the business incurs a Dh400,000 loss in 2024, but makes profits of Dh500,000 in 2025 and Dh1 million in 2026, choosing not to apply SBR in 2024 allows the business to carry forward the loss and reduce taxable profit in 2026 to Dh600,000. Applying SBR in 2025 means no taxes are paid on that year’s profit.
The savings from such strategies could be reinvested into the business, used for capital expenditures, or to pay down debts.
Corporate Tax Registration is Mandatory
Regardless of SBR eligibility, businesses must register for corporate tax with the UAE Federal Tax Authority. Even eligible businesses must file a simplified tax return and complete the necessary registrations to benefit from the relief.
Sumayya Zain, Managing Partner of Hallmark International Auditing of Accounts, stressed the importance of registration. “Businesses can elect for SBR when they file their tax returns and complete a simplified tax return to benefit from the relief. There are also other administrative benefits, such as simplified record-keeping and the ability to use cash-basis accounting for financial statements.”
Key Considerations for Businesses
Businesses should remember that opting for SBR means they cannot carry forward losses or claim other benefits like business restructuring relief. Additionally, splitting revenue between businesses in the same area to qualify for relief could be considered an abuse of the tax rules.
Sumayya advises businesses to assess, year by year, whether claiming the relief is the most beneficial option.
