UAE clarifies tax relief filing duties

The Federal Tax Authority has reminded small businesses that claiming corporate tax relief does not remove their obligation to register, file returns and maintain adequate financial records.

The clarification comes as companies with financial years ending on December 31, 2025, prepare to submit corporate tax returns and settle any amount due by September 30, 2026. The deadline falls nine months after the close of their tax period, in line with the standard filing timetable under the UAE Corporate Tax Law.

Businesses eligible for Small Business Relief must formally elect to use the concession through their corporate tax return. They may submit a simplified return containing fewer details, but cannot treat the relief as an exemption from the filing process.

The scheme allows a qualifying resident person to be treated as having earned no taxable income for an eligible tax period. Revenue must not exceed Dh3 million during that period or any previous tax period covered by the regime.

Once a business exceeds the Dh3 million threshold in any tax period, it cannot claim the relief for a later period, even if its revenue subsequently falls below the limit. Companies must therefore review their revenue history rather than rely only on figures from the year for which they are filing.

The eligibility test applies to revenue, not profit. A company with substantial operating expenses or a trading loss may still fail to qualify if its total revenue exceeds Dh3 million. Businesses using cash flow, net income or bank balances as a substitute for revenue could reach an incorrect conclusion about their status.

Qualifying Free Zone Persons cannot elect for Small Business Relief. Members of multinational groups with consolidated global revenue exceeding Dh3.15 billion are also excluded. The restriction is intended to focus the measure on start-ups, microbusinesses and smaller resident enterprises rather than large international groups.

Applicants must retain evidence showing that their revenue remained within the threshold. Relevant material can include sales records, invoices, contracts, transaction details, bank statements and accounting ledgers. Records concerning asset purchases and disposals, liabilities and ownership interests may also be required to support information reported in a return.

The authority can examine whether businesses have artificially divided their activities between separate entities to remain below the revenue ceiling. Where connected operations are split mainly to obtain a corporate tax advantage, the arrangement may be challenged under the law’s anti-abuse provisions.

Small businesses should also distinguish the relief from the UAE’s zero corporate tax band. Under the ordinary system, taxable income up to Dh375,000 is subject to a zero rate, while taxable income above that level is generally taxed at 9 per cent. Small Business Relief operates differently because an eligible business is treated as having no taxable income for the period in which it makes a valid election.

That distinction can affect the use of tax losses, interest deductions and other reliefs. A business electing for Small Business Relief cannot claim other exemptions, deductions or reliefs for the same tax period. Tax losses and disallowed net interest expenditure from a period covered by the election cannot generally be generated for future use.

Businesses that decide not to elect may calculate taxable income under the ordinary rules. This could be preferable for an enterprise with losses that it expects to carry forward against future profits. The choice may therefore require more than a comparison of the immediate tax payable.

The relief must be elected separately for every eligible tax period. Qualification in one year does not automatically extend to the next. Revenue must be reassessed and the required election made through each return.

Taxable persons are generally required to submit their returns and pay any corporate tax due within nine months of the end of the relevant tax period. Exempt persons that are required to register must submit their annual declarations within the applicable timeframe.

The authority has also maintained an initiative covering penalties imposed for late corporate tax registration. Eligible taxpayers may have such penalties waived, or refunded to their tax accounts where already paid, if they complete the required registration and submit the first return within seven months of the end of the first tax period.

That seven-month condition applies specifically to the registration-penalty waiver and should not be confused with the normal nine-month return deadline. Businesses seeking the waiver need to check the date on which their first tax period ended and whether all required submissions have been completed.