The UAE has extended Small Business Relief until the end of 2029. This is significant news for entrepreneurs, consultants and other small business owners with a company in Dubai or elsewhere in the UAE.
For companies that meet the conditions, the scheme means that it is still possible to pay 0% UAE Corporate Tax – even if the company has a significant profit.
The decisive factor for Small Business Relief is, first and foremost, the company’s turnover.
What is Small Business Relief in the UAE?
Small Business Relief is a special scheme under the UAE’s Corporate Tax system, which is targeted at smaller businesses.
An eligible business with a turnover of no more than AED 3 million in the relevant tax period and the relevant previous tax periods may elect to apply Small Business Relief.
When the scheme is applied correctly, the company is treated in the relevant tax period as if it had no taxable income.
The result is that the company does not have to pay UAE Corporate Tax for the period in question.
0% corporate tax – even with high profits
An important difference between Small Business Relief and the regular corporate tax rules in Dubai is that the AED 3 million limit relates to the company’s turnover and not its profits.
This can be of great importance for, for example, consultants, advisors and other service companies with relatively low operating costs.
For example, a company may have:
Turnover: AED 2,500,000
Cost: AED 500,000
Profit: AED 2,000,000
Even if the profit is AED 2 million, the company may still be covered by Small Business Relief if the conditions are otherwise met.
It is therefore not correct to generally assume that the introduction of Corporate Tax in the UAE means that all companies in Dubai now pay 9% in corporate tax.
For many smaller companies, the tax may still be 0%.
Small Business Relief has been extended until 2029
Under the previous rules, Small Business Relief was to cease for tax periods after December 31, 2026.
The scheme has now been extended so that it can be applied to qualifying tax periods ending no later than 31 December 2029.
For companies that use the calendar year as their accounting and tax year, this means that Small Business Relief may also be relevant for the financial years 2027, 2028 and 2029.
The extension will thus have economic significance right into 2030, when the 2029 tax year must be handled.
What if the revenue exceeds AED 3 million?
A company that cannot use Small Business Relief does not necessarily have to pay corporate tax.
According to the general rules, UAE Corporate Tax is basically:
0% of taxable income up to AED 375,000
9% of the portion of taxable income that exceeds AED 375,000
A company can therefore have a turnover of more than AED 3 million and still end up with 0 in UAE Corporate Tax, if its taxable income does not exceed AED 375,000.
For example, if the company has a taxable income of AED 500,000, the 9% is calculated as a starting point only on AED 125,000 – not on the company’s entire profit.
This is a significant difference when comparing corporate tax in the UAE with the tax level in many European countries.
Does a company still have to register for Corporate Tax?
Yes. Small Business Relief does not mean that the company can disregard the UAE Corporate Tax rules.
A company must continue to meet the relevant requirements for, among other things, Corporate Tax registration, accounting and reporting. Small Business Relief is selected in connection with the company’s Corporate Tax Return.
The difference is that a company that meets the conditions and chooses Small Business Relief correctly may end up not having to pay corporate tax.
It is therefore important to distinguish between the obligation to be registered and report and the actual tax that must be paid.
What about Free Zone companies?
Small Business Relief cannot be used by a business that is treated as a Qualifying Free Zone Person.
This does not have to be a disadvantage. Qualifying Free Zone Persons have their own scheme where Qualifying Income can be taxed at 0%.
However, the rules for Qualifying Free Zone Persons contain a number of requirements and do not necessarily suit the average small consulting or service company.
The fact that a company is established in a Free Zone does not in itself mean that the company is a Qualifying Free Zone Person. If you want to read more about Free Zone companies, you can do so here.
For many small business owners, Small Business Relief may therefore be the more relevant scheme.
Is there still 0% corporate tax in Dubai?
Yes – in a number of situations.
The old saying that there is no corporate tax in Dubai is no longer true. The UAE has introduced Corporate Tax.
But it is also not correct to conclude that all companies therefore pay 9%.
A small business can, among other things, end up with 0% Corporate Tax through Small Business Relief. Companies without Small Business Relief also have a 0% rate on taxable income up to AED 375,000, while Qualifying Free Zone Persons can have 0% on Qualifying Income.
The specific tax therefore depends on the company’s turnover, income, activities and tax status.
The extension of Small Business Relief to 2029 is therefore extremely positive for small business owners in the UAE.
Company formation in Dubai
Friis Legal advises international entrepreneurs and business owners on establishing companies in Dubai and the rest of the UAE, as well as on the tax aspects associated with the establishment.
This applies, among other things, to the choice of Free Zone, company structure, UAE Corporate Tax and the tax consequences of doing business through a company in the UAE.
You can read more about our consulting at www.friislegal.dk or contact us at contact@friislegal.dk.