The UAE’s introduction of corporate tax has understandably raised questions for small businesses. While the Small Business Relief (SBR) aims to ease the transition, meticulous attention to detail during tax filing remains crucial. This relief aims to reduce compliance obligations by exempting eligible businesses from calculating Taxable Income and paying Corporate Tax. However, certain conditions and procedures must be followed to ensure a smooth filing process. This blog outlines key considerations for small businesses in the UAE to ensure a smooth and compliant tax return process.
Understanding the Small Business Relief (SBR)
The SBR provides a crucial lifeline for smaller businesses. To leverage this relief effectively, one must understand the eligibility criteria and the specific benefits it offers. Key points to remember:
- Eligibility: Ensure the business meets the revenue thresholds and other requirements outlined by the Federal Tax Authority (FTA). To qualify for Small Business Relief, the business must:
- Be a Resident Person for Corporate Tax purposes.Have revenue of AED 3,000,000 or less in the relevant Tax Period and all previous Tax Periods.Not be a member of a Multinational Enterprise Group (MNE).
- Not be a Qualifying Free Zone Person.
Key Compliance Requirements and Considerations:
- Tax Registration and Election:
- Eligible businesses must register for Corporate Tax with the FTA.
- To benefit from the relief, an election must be made in the Tax Return for each relevant Tax Period.
- Accurate Revenue Records:
- Maintain accurate records of revenue to demonstrate eligibility for the relief.
- This is crucial for compliance and in case of an FTA audit.
- Tax Losses and Interest Expenditure:
- If electing for Small Business Relief, one cannot utilize, accrue, or transfer any Tax Losses or Net Interest Expenditure in that Tax Period.
- Any Tax Losses or Net Interest Expenditure carried forward from previous Tax Periods can be utilized in future Tax Periods if one does not elect for Small Business Relief, subject to the relevant conditions.
- Exempt Income:
- When calculating revenue for Small Business Relief eligibility, include all income, even if it would otherwise be considered exempt income.
- Other Reliefs:
- Small Business Relief election excludes the application of other Corporate Tax reliefs, such as those for transfers within a Qualifying Group and Business Restructuring
- Transfer Pricing Documentation:
- Businesses electing for Small Business Relief are exempt from maintaining transfer pricing documentation.
- However, transactions must still comply with the Arm’s Length Principle.
- Artificial Separation:
- Avoid artificially separating the business into multiple entities to stay below the revenue threshold, as this is not allowed and can result in penalties.
To avoid compliance issues, be aware of these common tax filing mistakes businesses often make.
Simplified Tax Return Filing
Taxable persons who elect for Small Business Relief will benefit from simplified tax return filing requirements instead of the full tax return required for regular Corporate Tax filings. This is a key administrative relief provided to ease the compliance burden on small businesses. Businesses electing for SBR are not required to calculate their Taxable Income.
For a detailed understanding of the corporate tax framework, refer to this comprehensive UAE Corporate Tax Guide.
Detailed Steps for Corporate Tax Return Filing with Small Business Relief Election
The process involves a combination of general tax return procedures and specific considerations for those electing SBR. Here’s a breakdown:
- Taxable Person Details
- One needs to accurately complete the “Taxable Person details” section of the return. Ensure that information such as Tax Registration Number (TRN) and legal name is correct. If the same is incorrect, an amendment is required to be filed prior to filing of the corporate tax return. This section helps EmaraTax tailor the rest of the return to the specific situation. If one is a juridical person that is a Resident Person, one would complete the fields relevant to that category.
- Declare the revenue for the Tax Period.
- Elections
- This is a crucial step. In the “Elections” section, one must explicitly elect for Small Business Relief.
- Making the election is essential to avail of the simplified tax treatment.
- Tax Computation
- A significant advantage of electing SBR is that one is not required to calculate the Taxable Income in the same way as other Taxable Persons. The return will be simplified in this section, focusing on the fact that, given the SBR election, the Taxable Income is treated as zero.
- However, one still needs to provide accurate information about the revenue.
- Election of Realisation Basis and Transitional Rules:
- Realisation Basis: “Realisation basis” is an accounting method where gains or losses from the disposal of assets are only recognized for Corporate Tax purposes when they are realized (i.e., when the asset is sold). Taxpayers can elect to apply the realisation basis, and this election is made in the “Elections” section of the Corporate Tax Return.
- Transitional Rules: “Transitional rules” are provisions that apply when the Corporate Tax Law is first implemented to address how assets and liabilities are treated for tax purposes. These rules allow Taxable Persons to adjust their Taxable Income to exclude gains or losses on certain assets (Qualifying Immovable Property, Qualifying Intangible Assets, and Qualifying Financial Assets/Liabilities) that they owned before the start of the Corporate Tax regime. Like the realisation basis, elections for transitional rules are made in the “Elections” section of the Corporate Tax Return.
- Tax Return Schedules
- Due to the SBR election, many of the detailed schedules in the tax return may not be applicable.
- For example, schedules related to Tax Losses, Interest Deduction Limitations, and other reliefs that would normally adjust Taxable Income are not relevant since the Taxable Income is considered zero.
- Review and Declaration
- As with any tax return, carefully review all the information that has been entered. Ensure that the revenue is accurately reported and correctly elected for SBR.
- Submit the return by the due date.
Eligible businesses must complete the corporate tax registration process before filing returns under Small Business Relief.
Important Notes:
- Even with SBR, one must maintain proper records to substantiate the revenue and eligibility for the relief.
- The FTA can still enquire into the tax affairs, so accurate record-keeping is essential.
- If the business is involved in transactions with related parties, ensure that these are conducted at arm’s length, even though detailed transfer pricing documentation may not be required under SBR.
- The Corporate Tax Return may require information related to the business’s license as part of the general business details. The possession of a valid trade license is fundamental to conducting business legally in the UAE, and the Corporate Tax Law applies to businesses authorized to operate in the UAE.
- The Corporate Tax Return requires details about the Taxable Person’s primary business activity.
Discover more about assistance and support for UAE corporate tax if you’re navigating Small Business Relief.
Conclusion
Small Business Relief offers significant advantages for eligible businesses in the UAE. By understanding and adhering to the eligibility criteria and compliance requirements, businesses can process the Corporate Tax return effectively and maximize the benefits of this relief. Feel free to reach out to us at nikhil@bclglobiz.com for any assistance related to corporate tax matters.
