The UAE Ministry of Finance issued a new ministerial decision on Small Business Relief, which permits small businesses earning $816,880 (AED 3 million) or less to claim tax relief during a tax period if their revenue does not exceed a particular threshold.
The objective of Small Business Relief is to aid startups and small or micro businesses by easing their corporate tax burden and compliance expenses. This decision aligns with Article 21 of the corporate tax law, which states that a taxable person would not have derived any taxable income in a given tax period if their revenue did not exceed a certain threshold.
As per the new scheme, the ministry specified that taxable persons residing in the UAE can claim Small Business Relief if their revenue in the relevant and preceding tax periods is below AED 3 million for each period. However, if a taxable person surpasses the revenue threshold in any tax period, they will no longer be eligible for tax relief, as per the Ministry of Finance.
The announcement of tax relief for businesses, startups, and individuals with the implementation of corporate tax from June 1, 2023, was well received by finance experts and businessmen in the UAE.
The Ministerial Decision on Small Business Relief stipulates the following:
1. 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 the Small Business Relief will no longer be available.
2. The AED 3 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.
3. Revenue can be determined based on the applicable accounting standards accepted in the UAE.
4. 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.
5. 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.
6. With regard 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 AED 3 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.
Conclusion
This decision on small business relief made by the Ministry of Finance is a clear indication of the government’s commitment to supporting and promoting small businesses in the country. This initiative will not only encourage more investment in the sector and drive economic growth but will also encourage competition leading to greater innovation. We believe that this action will create opportunities for additional initiatives that promote the advancement and progress of small businesses, enabling them to grow their operations sustainably.
If you have any questions regarding this update or require tax-related assistance, don’t hesitate to reach out to us at info@nn-ca.com or +97143577678. Our team of accounting experts will be more than happy to assist you.
