Is splitting a business to qualify for Small Business Relief allowed?
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No. If you split a business just to keep each part's revenue under the Small Business Relief threshold, the tax authority can treat this as an abusive arrangement, deny the relief, and charge back the tax plus penalties.
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The detail
Under Article 6 of Ministerial Decision No. 73 of 2023, artificial separation of a business or business activity, where combined revenue across the separated persons exceeds the Small Business Relief threshold and relief has been elected, is treated as an arrangement to obtain a Corporate Tax advantage under Article 50 of the Corporate Tax Law. The FTA will look at whether there was a valid commercial purpose and whether the persons carry on substantially the same business, considering financial, economic and organisational links.1
What the law says
- An arrangement where one or more persons artificially separate their business, and combined revenue exceeds the AED 3 million threshold, is treated as an impermissible tax advantage arrangement under the Corporate Tax Law's general anti-abuse rule.1
- In assessing artificial separation, the FTA considers whether the arrangement has a valid commercial purpose and whether the entities carry on substantially the same business, based on their financial, economic and organisational links.1
- Guidance confirms that where artificial separation is established, the person must repay any unpaid Corporate Tax plus applicable penalties.2 Based on FTA guidance
What it depends on
Check before you rely on it
- Check whether the separate entities share ownership, management, staff or premises that suggest they are one business.
- Confirm there is a genuine commercial reason for operating as separate entities, documented contemporaneously.
- Check the combined revenue of all related entities against the AED 3 million threshold.
Sources (2) — read the official text
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Article 6 – Artificial Separation of Business
Read the article
Article 6 – Artificial Separation of Business 1. Where the Authority establishes that one or more Persons have artificially separated their Business or Business Activity and the amount of Revenue across the Persons’ entire Business or Business Activity exceeds the threshold specified under Clause (1) of Article 2 of this Decision in any Tax Period, and such one or more Persons have elected to apply the Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage under Clause 1 of Article 50 of the Corporate Tax Law. 2. For the purposes of determining whether the Business or Business Activity has been artificially separated, the Authority shall consider whether the arrangement was undertaken for a valid commercial purpose and whether the Persons carry on substantially the same Business or Business Activity by taking into account all relevant facts and circumstances, including but not limited to their financial, economic and organisational links.
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Read the article
● Any PE of a separate business unit of the MNE if the business unit prepares separate financial statements for the PE. Even if a UAE constituent company of an MNE has Revenue equal to or below AED 3,000,000 for the relevant Tax Period and all previous Tax Periods, the UAE constituent company will still not be able to elect for Small Business Relief. 3.1.2. Qualifying Free Zone Persons Small Business Relief will not be available to Qualifying Free Zone Persons. Qualifying Free Zone Persons already benefit from a 0% Corporate Tax rate on their Qualifying Income.10 A Qualifying Free Zone Person is a Free Zone Person that:11 ● ● ● ● Maintains adequate substance in the UAE; Derives Qualifying Income as specified in the relevant Cabinet Decision;12 Has not elected to be subject to Corporate Tax; Complies with the requirements under the Arm’s Length Principle and transfer pricing documentation; and ● Meets the following other conditions prescribed by the Minister;13 − The non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% (five percent) of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5,000,000 (five million dirhams), whichever is lower;14 and − Prepares audited financial statements. 3.1.3. Artificial separation Small Business Relief will also not be available where a Person artificially separates their Business into more than one entity in order to ensure that the Revenue of each entity is below the threshold for Small Business Relief.15 Where the FTA establishes that artificial separation has taken place, the Person will have to repay any unpaid Corporate Tax and any penalties that may be charged.16 How does Small Business Relief work? Small Business Relief allows eligible Resident Persons to elect to be treated as having no Taxable Income in a Tax Period where they have Revenue of less than or equal to 10 Article 3(2)(a) of the Corporate Tax Law. 11 Article 18(1) of the Corporate Tax Law. 12 Cabinet Decision No. 55 of 2023. 13 Article 5 of Ministerial Decision No. 139 of 2023. 14 Article 4 of Ministerial Decision No. 139 of 2023. 15 Article 6(1) of Ministerial Decision No. 73 of 2023. 16 Article 6(2) of Ministerial Decision No. 73 of 2023. Corporate Tax Guide | Small Business Relief | CTGSBR1 14
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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