Corporate Tax in UAE
Article 21 of the UAE Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘the CT Law’) provides for ‘Small Business Relief’.
On 06 April 2023, the Ministry of Finance issued a Ministerial Decision No. 73 of 2023 (‘Ministerial Decision’) available at https://mof.gov.ae/ministry-of-finance-issues-decision-on-small-business-relief-for-corporate-tax-purposes/. This Ministerial Decision defines the threshold of election for Small Business Relief and stipulates the conditions required to be fulfilled to claim such relief. The provisions of the Ministerial Decision shall be effective from tax periods starting on or after 01 June 2023.
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 stipulates the following criteria:
Further, the CT law specified that once the taxable person elects to apply the small business relief provision, he shall not be eligible to claim
However, such businesses shall not be required to maintain Transfer Pricing Documentation as stipulated under Article 55 of the CT law.
Election to apply for Small Business Relief shall not be applicable to:
The Ministerial Decision cautions about Business restructuring carried out to gain Corporate Tax advantage by opting for Small Business Relief. It clearly states that it would be considered to be covered as an arrangement under Clause (1) of Article 50 – The General Anti-Abuse Rules of the CT Law.
The business will have to evaluate whether it is preferable to opt for Small Business Relief or to continue to be governed under the normal provision of the CT Law, keeping in mind that the eligibility to claim such relief is only up to the tax period that ends before 31 December 2026.
The evaluation becomes essential especially when the business is making losses initially and such losses are intended to be set off against future income or when the interest cost is intended to be claimed over a period of time.
To ensure that your business makes the right choice, it's advisable to seek expert advice from a professional tax consultant. For further queries, please feel free to contact us at ECAG.
Manager- Direct Tax
M: +971 52 2500480