Tax

The Impact of VAT and Corporate Tax on Small and Medium Enterprises (SMEs) in the UAE

May 2, 2025 Comments Off on The Impact of VAT and Corporate Tax on Small and Medium Enterprises (SMEs) in the UAE

The United Arab Emirates (UAE) has opened a new chapter in its tax strategy with the addition of a corporate tax and VAT. The implementation of corporate tax and VAT in the UAE represents an important change in the financial landscape, creating new challenges and opportunities for Small and medium enterprises (SME).

At Jaxa Chartered Accountants, we understand that navigating VAT and corporate tax in Dubai, UAE, can be complex, especially for small and medium businesses. Jaxa is a UAE FTA-registered tax agent having certified VAT and corporate tax consultants in building a trusted name in Dubai’s financial advisory space while staying business compliant. This blog brings you the impact of VAT and corporate tax on small and medium enterprises in the UAE.

Overview of UAE Corporate Tax

The UAE has introduced Federal Decree-Law No. 47 of 2022 on June 1st, 2023, imposing federal corporate tax on taxable profits. Businesses with taxable income earning more than AED 375,000 are subject to a standard rate of 9%. Those below this threshold will not be required to pay UAE corporate tax. Thus, the UAE corporate tax has less impact on small and medium enterprises. Further, the UAE Government has rolled out the Small Business Relief Initiative to support small and startup businesses. It grants tax relief to those businesses earning revenue below AED 3 million until 2026.

Impact of UAE’s corporate tax on SMEs

While the impact of corporate tax on SMEs in the UAE varies based on business factors like size, industry, and profit margins, certain areas are expected to be more affected, including:

  • Financial strain on SMEs: The UAE corporate tax might add costs for SMEs in terms of record maintenance and filing, pushing them to invest in accounting tools or services.
  • Cash Flow pressure on SMEs: Effective cash flow management is a key for SMEs to meet UAE corporate tax obligations without hindering business operations.
  • Managing Profit Margin: SMEs with net profits more than AED 375,000 will see a a small negative effect on profit margin however it is to be noted that UAE sits at a relatively lower tax rate compared to other countries. To maintain profitability, businesses must adjust pricing policies and control operational costs.

Overview: UAE VAT and Its Implications for Small Businesses

The introduction of Value Added Tax (VAT) on January 1, 2018, has brought substantial changes to business conditions in the UAE, particularly for small and medium-sized enterprises (SMEs). All SMEs are required to comply with the multi-dimensional rules set forth by VAT regulations in the UAE. While VAT adds layers of compliance duties, it also presents new financial opportunities for SMEs in Dubai.

Impact of VAT on Small and Medium Businesses in the UAE

  • High Operating Expense: SMEs have limited budgets, but the imposition of VAT can cause higher operational costs.
  • Cash flow management: Small businesses should manage VAT carefully to avoid cash flow issues. By proactively planning and reserving VAT collected, businesses can better manage their finances and meet their tax liabilities without hindering daily operations.
  • VAT Compliance: SMEs are required to maintain proper documentation, which can overwhelm small businesses with the paperwork involved, including tax invoices, input VAT records, and reports to comply with VAT regulations. To avoid penalties and audits, accounting platforms like Tally and Zoho Books can simplify VAT compliance for small and medium-sized businesses in Dubai by automating invoicing and streamlining record-keeping.
  • VAT Registration: If your business generates an annual taxable supply of AED 375,000 or more, you are required to register for VAT with the FTA in the UAE. While this may seem like a burden for new business owners, it also provides the opportunity to reclaim input VAT and improve cash flow.

VAT & Corporate Tax  Support Services for Small Businesses in Dubai

Jaxa Chartered Accountants’ tax consultants in Dubai offer expert guidance to small businesses in areas including:

  • Assistance with UAE VAT and Corporate Tax Registration & Compliance: Our certified tax consultants at Jaxa are experts in handling the entire registration process while ensuring all records are accurate and align with the UAE’s FTA regulations.
  • VAT and Corporate Tax Return Management: We ensure your VAT and corporate tax returns in Dubai, UAE, are filed accurately and on schedule, preventing penalties and ensuring compliance with the UAE’s FTA regulations.
  • VAT & Corporate Tax Liability Reduction: Our team of tax consultants at Jaxa guides you in planning and strategies to lower both VAT and corporate tax obligations, enhancing your business’s financial efficiency.
  • UAE VAT & Corporate Tax Audit Preparedness:

Our team assists in preparing your business for VAT and corporate tax audits, ensuring all paperwork is in order and compliant with the UAE’s FTA guidelines.

Why Choose Jaxa for Expert Tax Consulting Services in the UAE?

Navigating VAT and corporate tax in Dubai, UAE, is challenging for SMEs. It is important for SMEs to stay current, while utilizing tax exemptions and relief, and contribute to the growth of the UAE’s economy. Partnering with one of the top VAT and corporate tax consultants in the UAE and Dubai will help businesses, especially SMEs, to stay compliant with UAE tax regulations.

Backed by 18 years of experience, Jaxa provides personalized and expert guidance, offering VAT and corporate tax services while ensuring compliance with the UAE’s FTA regulations.

Jaxa, a UAE FTA registered tax agent, has a team of experts with years of experience and actionable insights, providing VAT, corporate tax, accounting and bookkeeping, audit, and assurance services across the UAE and Dubai.

Partner with us for your VAT and corporate tax services, which include timely registration, accurate return filing, audit, and compliance support , and we’ll ensure your business stays compliant with the  UAE VAT and corporate tax regulations, with expert support at every step.

Our team of certified accountants, auditors, VAT, and corporate tax consultants in the UAE  is here with you to assist you in VAT and corporate tax compliance requirements.

Do not hesitate to reach out. You are just a phone call away! Contact Jaxa now to simplify VAT and corporate tax for small and medium enterprises.