UAE Corporate Tax Law – Announcement on small business tax relief

Threshold limit for ‘Small Business Relief’ under UAE Corporate Tax announced vide Ministerial Decision No. 73 of 2023

UAE Corporate Tax Law

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.

Purpose of Small Business Relief in the UAE Corporate Tax:

Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. 

Small Business Relief Criteria as per the Ministerial Decision

The Ministerial Decision on Small Business Relief stipulates the following criteria:

• Revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period.
• Revenue can be determined based on the applicable accounting standards accepted in the UAE.
• The AED 3 million revenue threshold will apply to and will only continue to apply to subsequent tax periods until 31 December 2026.
• Businesses will not be allowed to carry forward any Tax Losses incurred 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.

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 

• Exempt Income
• Reliefs for transfer within the qualifying groups and business restructuring relief 
• Deduction on expenditure incurred.

However, such businesses shall not be required to maintain Transfer Pricing Documentation as stipulated under Article 55 of the CT law.

• Further, unless otherwise specifically exempt from doing so, such persons may be required to undertake the following compliance:
• Corporate Tax Registration 
• Maintain financials to demonstrate the eligibility to claim the relief 
• The election needs to be notified to the Tax Authority  

Disqualification from Small Business Relief: 

Election to apply for Small Business Relief shall not be applicable to:

1. Qualifying Free Zone Persons 
2. Members of Multinational Enterprises Groups (MNE Groups). MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion.

Attention:

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.

Way Forward:

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.

Simplify Small Business Relief with ECAG's Professional Tax Consultancy

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.

For UAE Corporate Tax-related clarification 

Purvi Mehta
Manager- Direct Tax
M: +971 52 2500480
E: purvi@emiratesca.com