UAE small business relief - Introduction
The UAE's Ministry of Finance has recently issued Ministerial Decision No. 73 of 2023, which aims to provide small business relief for corporate tax purposes.
The relief is designed to support start-ups and small or micro businesses by reducing their corporate tax burden and compliance costs.
UAE Small business relief - the details
Small Business Relief provides that a taxpayer may elect to be treated as not having derived any taxable income for a tax period if their revenue in the relevant tax period and previous tax periods is below AED 3 million.
Quite simply, where SMEs have revenue below the AED 3 million threshold then they may be exempted from tax.
Once a taxable person exceeds the AED 3 million revenue threshold in any tax period, the relief will no longer be available.
AED 3 million is around USD 817k and GBP 657k.
The revenue threshold will apply to tax periods starting on or after June 1, 2023, and will continue to apply to subsequent tax periods ending before or on December 31, 2026.
The revenue is to be determined based on the applicable accounting standards accepted in the UAE.
Qualifying Free Zone Persons & MNEs
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.
Key information is yet to be revealed regarding important aspects of the tax position of Free Zone companies.
MNE Groups are groups of companies with operations in more than one country and have consolidated group revenues of more than AED 3.15 billion (circa USD 857m or GBP 690m)
Election not made
In tax periods where businesses do not elect to apply for Small Business Relief, they can 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 relief is not elected.
Artificial business splitting
The Ministerial Decision also addresses the issue of artificial separation of businesses.
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 Dh3 million in any tax period, while 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.
UAE Small Business Relief - Conclusion
In summary, the UAE's Ministry of Finance has introduced Small Business Relief to support start-ups and small or micro businesses by easing their corporate tax burden and compliance costs.
Eligible businesses with revenues below AED 3 million can benefit from this relief.
However, the relief will not be available to qualifying free zone persons or members of multinational enterprises groups.
Additionally, the decision emphasises that artificial separation of businesses for the purpose of obtaining a corporate tax advantage will be considered an abuse of the relief scheme.
All in all, this measure will maintain the UAE as a jurisdiction of choice for many SMEs.
If you have any queries about the UAE small business relief or UAE tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article