UAE Government supports Small Businesses reducing corporate tax burdens
April 12, 2023
The United Arab Emirates (UAE) has been actively taking steps to encourage small businesses and support their growth in the country. One such step is the recent decision by the UAE Ministry of Finance to provide relief to small and medium-sized enterprises (SMEs) for corporate tax purposes. The government’s move to reduce the tax burden on SMEs and provide them with financial support is expected to facilitate the growth of these businesses and contribute to the overall economic development of the UAE. Below is an overview of the relief measures announced by the Ministry of Finance and its implications for small businesses operating in the UAE.
The UAE Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). The decision is issued 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.
The Ministerial Decision on Small Business Relief specifies the revenue threshold and conditions for a taxable person to elect for Small Business Relief and clarifies the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief scheme.
The Ministerial Decision on Small Business Relief stipulates the following:
- Taxable persons that are resident persons can claim Small Business Relief where their revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period. This means that once a taxable person exceeds the AED 3 million revenue threshold in any tax period, then Small Business Relief will no longer be available.
- The AED 3 million revenue threshold will apply to tax periods starting on or after 1 June 2023.
- The AED 3 million revenue threshold 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.
- Small Business Relief will not be available to: 1) Qualifying Free Zone Persons or 2) members of Multinational Enterprises Groups (MNE Groups) as defined in Cabinet Decision No. 44 of 2020 on Organizing Reports Submitted by Multinational Companies which have consolidated group revenues exceeding AED 3.15 billion or 3) nonresidents.
- 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. (General Interest Deduction Limitation Rule)
- With regards to the artificial separation of business, the Ministerial Decision specifies that where 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.
