Key reliefs available under the Corporate Tax Law in the UAE

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Let's chat about some key reliefs available under the Corporate Tax Law in the UAE.

Small Business Relief

Small business relief is a fantastic way for eligible small businesses in the UAE to reduce their corporate tax burden and compliance costs. Here's how it works:

If your business has revenue equal to or below AED 3,000,000 in a relevant tax period (and all previous tax periods ending on or before December 31, 2026), you can opt to be treated as having no taxable income for that period. This means you won't have to calculate your taxable income or file a full tax return.

However, you can still carry forward any unused tax losses and disallowed net interest expenses to future tax periods when the small business relief no longer applies. To be eligible, your business must not be part of a multinational enterprise that has to prepare a Country-by-Country Report, and you can't be a Qualifying Free Zone Person.

Example 1: Mr. X's Small Business Relief

Mr. X runs a small business in Abu Dhabi. His revenue has always been below AED 3,000,000 per tax period. For the tax period ending December 31, 2025, his revenue was AED 2,000,000. Mr. X is eligible for small business relief, so he opts for it. As a result, he doesn't need to calculate his taxable income or pay corporate tax for that period.

Example 2: C LLC's Carried Forward Tax Losses

C LLC is a UAE resident company with revenue of AED 1,700,000 for the tax period ending December 31, 2025. They have AED 400,000 in unused tax losses from previous periods. C LLC opts for small business relief for 2025, so they can't use their tax losses that year but can carry them forward to future periods when they no longer qualify for the relief. In 2026, C LLC's revenue exceeds AED 3,000,000, making them ineligible for relief. They must calculate taxable income for 2026 but can use the AED 400,000 in tax losses from previous periods.

Transfers within a Qualifying Group

If your business transfers assets or liabilities to another business within the same qualifying group, you can benefit from corporate tax relief. This means no taxable gain or loss arises from the transfer.

To qualify, both businesses must be resident persons or have a permanent establishment in the UAE, have at least 75% ownership interest in each other (direct or indirect), not be exempt persons or qualifying free zone persons, and follow the same financial year and accounting standards.

Example 3: C LLC and D LLC's Machinery Transfer

C LLC and D LLC are manufacturing businesses owned by X LLC. D LLC needs machinery to fulfill a large contract, so C LLC transfers its unused machinery to D LLC without payment. The net book value of the machinery is AED 800,000, and the market value is AED 1,200,000. For tax purposes, the machinery is considered transferred at AED 800,000, meaning no gain or loss for C LLC.

Example 4: Subsequent Sale by D LLC

A year later, D LLC sells the machinery for AED 1,500,000. Since the sale happened within two years of the original transfer, the relief no longer applies. C LLC must treat the original transfer at market value, resulting in a taxable gain of AED 400,000 for the original transfer period.

Business Restructuring Relief

This relief applies when a business or a part of it is transferred in exchange for shares or other ownership interests. If all conditions are met, no gains or losses need to be recognized for corporate tax purposes.

Conditions include the transfer complying with UAE legislation, both parties being resident persons or having a permanent establishment in the UAE, and not being exempt persons or qualifying free zone persons.

Example 5: F LLC and Z LLC's Business Transfer

F LLC transfers its business to Z LLC in exchange for 20% of Z LLC's shares. The net book value of the business is AED 2,300,000, while the market value of the shares is AED 2,700,000. For tax purposes, the business is transferred at AED 2,300,000, resulting in no gain or loss for F LLC or Z LLC.

Example 6: Subsequent Sale by Z LLC

A year later, Z LLC sells the business for AED 3,000,000. Since the sale occurred within two years, the relief is clawed back. F LLC must recognize a gain of AED 400,000 for the original transfer period.

 How Fastlane Can Help with Corporate Tax Compliance

Navigating corporate tax reliefs and compliance can be complex, but that's where Fastlane comes in. We offer a 'Smart Compliance' solution that helps you manage your corporate tax obligations seamlessly. Our services include:

 - Ensuring you qualify for relevant tax reliefs.

 - Managing and optimizing your tax filings.

 - Keeping track of carried forward tax losses and other allowances.

 - Providing expert advice on restructuring and group transfers to maximize tax efficiency.

With Fastlane, you can focus on growing your business while we take care of the intricate details of corporate tax compliance. Schedule a free consultation with us to see how we can help your business thrive in the UAE.