Eligibility for Small Business Relief in the UAE

Navigating the intricacies of Small Business Relief in the UAE can be complex, especially for multinational enterprises (MNEs) and businesses operating in free zones. This post aims to clarify the eligibility criteria for Small Business Relief with practical examples to help you better understand the regulations.

Exclusion of MNE Members

Key Point: Constituent companies of MNEs are not eligible for Small Business Relief, even if they are Resident Persons.

An MNE is defined as a group consisting of two or more companies operating in separate countries, or a single company resident in one country and subject to tax in another, with a total consolidated group revenue of at least AED 3.15 billion. A constituent company includes any business unit included in the MNE's consolidated financial statements or excluded solely on size or materiality grounds. This also includes any Permanent Establishment (PE) of a business unit if it prepares separate financial statements for the PE.

Example:

Imagine "Global Tech Inc." operates in the UAE and the US, with a consolidated revenue of AED 4 billion. Despite being a Resident Person in the UAE, its UAE subsidiary "Global Tech UAE" cannot claim Small Business Relief due to its membership in an MNE with revenues exceeding AED 3.15 billion.

Exclusion of Qualifying Free Zone Persons

Key Point: Qualifying Free Zone Persons are not eligible for Small Business Relief, even if their revenue is AED 3,000,000 or less.

Free Zone Persons that are not considered Qualifying Free Zone Persons can elect for Small Business Relief if they are Resident Persons and their revenue does not exceed AED 3,000,000. However, if a Qualifying Free Zone Person elects to be subject to Corporate Tax for a specific period, they can then elect for Small Business Relief if they meet the required conditions.

Example:

"FreeZone Innovations" operates in a UAE free zone and has annual revenue of AED 2.5 million. If it is not a Qualifying Free Zone Person, it can elect for Small Business Relief. However, if it is a Qualifying Free Zone Person, it cannot claim this relief unless it opts to be subject to Corporate Tax for a specific period and meets other requirements.

Permanent Establishments of Non-Resident Persons

Key Point: PEs of Non-Resident Persons are generally not eligible for Small Business Relief unless there is a Double Taxation Agreement with a non-discrimination clause.

Non-Resident Persons’ PEs in the UAE are usually ineligible for Small Business Relief. However, if the Non-Resident Person's country has a Double Taxation Agreement with the UAE that includes a non-discrimination provision, their UAE PE may be eligible for the relief if they meet all required conditions.

Example:

"Global Retail Corp." is based in Germany and has a PE in the UAE. If Germany has a Double Taxation Agreement with the UAE that includes a non-discrimination clause, and Global Retail Corp.’s UAE PE meets the required conditions, it could be eligible for Small Business Relief.

Calculating Revenue for Relief Eligibility

Key Point: Both UAE-sourced and foreign income must be included when calculating Revenue for Small Business Relief.

For juridical persons, all foreign and UAE income should be considered when calculating revenue. For natural persons, only foreign income related to their UAE business activities should be included.

Example:

"Ahmed’s Trading," a juridical person, earns AED 1.5 million from the UAE and AED 1 million from international operations. When calculating revenue for Small Business Relief, Ahmed’s Trading must consider the total AED 2.5 million. However, if Ahmed is a natural person, he should only include foreign income related to his UAE business activities.

Understanding these specific criteria and examples helps businesses determine their eligibility for Small Business Relief in the UAE, ensuring they comply with regulations and maximize their financial planning strategies.