The UAE Ministry of Finance issued Ministerial Decision No. 73 of 2023 on 3 April, which sets out the conditions for small businesses to claim Small Business Relief under the new Corporate Tax Law that will apply across the UAE with effect from June.
The UAE’s new Corporate Tax regime, which was introduced in December 2022 by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is to apply with a headline rate of 9% for accounting periods beginning on or after 1 June 2023.
The Corporate Tax Law provides for a Small Business Relief exemption under which small businesses that qualify as Resident Persons can elect to be treated as having no taxable income for a tax period but did not specify the qualification criteria.
“The new Ministerial Decision establishes that businesses with an annual revenue below AED3 million (c. USD817,000) will qualify for the Small Business Relief exemption and will be exempt from Corporate Tax until 31 December 2026,” said Nicholas Cully, Sovereign Group Sales Director.
“This applies if their revenue in the relevant tax period and previous tax periods is below AED3 million for each tax period. Once the revenue threshold is exceeded, the Small Business Relief will no longer be available.”
Businesses will be able to carry forward incurred tax losses and disallowed net interest expenditure from such tax periods for use in future tax periods only if they elect not to apply for Small Business Relief.
The Small Business Relief exemption does not apply to Qualifying Free Zone companies or members of Multinational Enterprises (MNEs) with consolidated group revenues of more than AED3.15 billion.
The Decision expands on the relief already contained in the Corporate Tax Law, which applies to businesses with annual profits of less than AED 375,000. Where this relief is applied, there is also no ability to carry forward losses.
The Ministry of Finance statement clarified that 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 and may be set aside.
There may also be a relaxation of filing and registration requirements for small businesses under further rules that have yet to be issued.