MINISTRY OF FINANCE ISSUES DECISION ON CORPORATE TAX RELIEF FOR SMALL BUSINESSES

This article has been researched and written by the Tax & Compliance Team at Creation Business Consultants. AI has not been used in generating this article.

The Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law).

Ministerial Decision No. 73 of 2023 specifies that businesses with revenues of AED 3 million or less can benefit from Small Business Relief and the conditions for Small Business Relief election. It is stated that the revenue can be determined based on the applicable accounting standards accepted in the UAE.
The decision is issued in accordance with Article 21 of the Corporate Tax Law, which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold.

Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. The Ministerial Decision on Small Business Relief specifies the revenue threshold and conditions for a taxable person to elect for Small Business Relief and clarifies the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief scheme.

OVERVIEW OF THE MINISTERIAL DECISION ON SMALL BUSINESS RELIEF

The Ministerial Decision on Small Business Relief stipulates the following:

1. Taxable persons that are resident persons can claim Small Business Relief where their revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period. This means that once a taxable person exceeds the AED 3 million revenue threshold in any tax period, then the Small Business Relief will no longer be available.
2. The AED 3 million revenue threshold applies to tax periods starting on or after 1 June 2023 and will only continue to apply to subsequent tax periods that end before or on 31 December 2026.
3. Revenue can be determined based on the applicable accounting standards accepted in the UAE.
4. Small Business Relief will not be available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups) as defined in Cabinet Decision No. 44 of 2020 on Organising Reports Submitted by Multinational Companies. MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED 3.15 billion.
5. In tax periods defined in the decision where businesses do not elect to apply for Small Business Relief, they will be able to carry forward any incurred Tax Losses and any disallowed Net Interest Expenditure from such tax periods, for use in future tax periods in which the Small Business Relief is not elected.
6. In regards to the artificial separation of businesses, the Ministerial Decision established by the Federal Tax Authority (FTA) specifies that the taxable persons have artificially separated their business or business activity, and the total revenue of the entire business or business activity exceeds AED 3 million in any tax period and such persons have elected to apply for Small Business Relief, this would be considered an arrangement to obtain Corporate Tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the Corporate Tax Law.

TAKEAWAY

There is much work and preparation that needs to be prepared before the implementation of Corporate Tax in the UAE. It is best to be equipped and plan regarding such matters to have a smooth transition for UAE business operations. For more information regarding how Creation can assist your business to register for Corporate Tax and have an overview of the UAE Corporate Tax implementation guidelines, contact our tax experts for a free consultation, email [email protected] or call UAE +97148786240 KSA +966 54 511 2494