The UAE Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief to support start-ups and small or micro businesses by reducing their corporate tax burden and compliance costs. This decision is 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 will be available to resident persons with revenue in the relevant tax period and previous tax periods below AED3 million for each tax period. This means that once a taxable person exceeds the AED3 million revenue threshold in any tax period, the Small Business Relief will no longer be available. The AED3 million revenue threshold will apply 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.
Revenue can be determined based on the applicable accounting standards accepted in the UAE. This means that businesses can use the same accounting standards that they would use for their financial statements to determine their revenue for the purpose of Small Business Relief.
However, 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 AED3.15 billion. This means that only resident persons who are not part of MNE Groups or Qualifying Free Zone Persons can avail of Small Business Relief.
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. This means that businesses can still benefit from tax savings by carrying forward losses and disallowed net interest expenditure from tax periods where they did not elect to apply for Small Business Relief.
The Ministerial Decision also addresses the issue of artificial separation of business. If the Federal Tax Authority (FTA) establishes that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds AED3 million in any tax period and such persons have elected to apply for Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the Corporate Tax Law. This means that businesses cannot artificially separate their business or business activity to avail of Small Business Relief if their total revenue exceeds AED3 million.
All Cabinet Decisions and Ministerial Decisions issued relating to the Corporate Tax Law are available on the Ministry of Finance’s website: www.mof.gov.ae.
Summary of article by: UAE Ministry of Finance
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