UAE Ministry of Finance clarifies Small Business Relief conditions under Corporate Tax Law
The Ministry of Finance (‘MOF’) in UAE has issued a new 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 outlining the conditions and requirements for Small Business Relief under the UAE Corporate Tax Law.
What are the main conditions set out in this Decision?
Well, under the UAE Corporate Tax Law, a resident taxable person can choose to be treated as not having derived any taxable income for a given tax period, but there are certain conditions that must be met. One of the key conditions is the Revenue threshold, which has now been clarified in the Ministerial Decision, along with other conditions and aspects. Here’s a summary of the key points:
- Revenue threshold: The threshold is AED 3 million for the current and previous tax periods, determined according to the applicable accounting standards in the UAE. If the threshold is exceeded for the previous tax period, relief will no longer be available.
- Relief period: Small Business Relief will be available for three financial years/tax periods between 1 June 2023 and 31 December 2026.
- Exclusions: There are exclusions to relief, such as Qualifying Free Zone Persons and Constituent companies of Multinational Enterprises (MNE) Groups that have consolidated group revenues of over AED 3.15 billion.
- Tax losses and disallowed Net interest expense: Businesses choosing to take advantage of Small Business Relief cannot carry forward tax losses and disallowed net interest expenses relating to the tax period of their election. However, if Small Business Relief has not been availed, then such restrictions will not apply, subject to other conditions in UAE Corporate Tax Law.
- The artificial separation of business: If the Federal Tax Authority (FTA) discovers that taxable persons have artificially separated their business to claim relief and their total revenue across all businesses exceeds AED 3 million, then such a transaction or arrangement would be considered to fall under the ambit of the General Anti-Abuse Rules of the UAE CT Law.
This is a positive step taken by the UAE Government to provide support and relief to start-ups, small, and micro-businesses. Small businesses need to keep financial statements to determine their eligibility for Small Business Relief as per applicable accounting standards.