On 3 April 2023, the Ministry of Finance issued Ministerial Decision No. 73 of 2023 detailing the Small Business Tax Relief, as mentioned in article 21 of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
The tax relief, which is intended to encourage investments, small businesses and start-ups, applies to UAE tax residents that are eligible under the specified revenue threshold. It allows for the taxable person to be considered as not having any derived taxable income in a fixed tax period to reduce their tax costs and compliance requirements.
It is important to note that this Small Business Tax Relief does not cover members of Multinational Enterprise Groups, that have consolidated group revenues of more than 3.15 billion AED[1], or qualifying Free Zone persons.
WHAT IS THE REVENUE THRESHOLD?
To be eligible for the tax relief, it is provided that the revenue for the relevant tax period, and each previous tax periods, do not exceed 3 million AED.
For the calculation of the Revenue, the accounting standards applicable in the UAE are accepted, such as Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
However, if the revenue exceeds the established threshold, then the taxable person will be subject to the Corporate Tax Law and will be taxed at 9 per cent for revenues exceeding 375,000 AED.
WHAT IS THE APPLICABLE TAX PERIOD AND DURATION?
Small businesses can benefit from this for tax periods starting on or after 1 June 2023, and will continue to apply to subsequent tax periods that end before or on 31 December 2026. The relief is therefore set to be applicable for 3 tax years.
IS THERE AN ANTI-ABUSE RULE?
Yes. In instances where a taxable person intentionally separates its business for the sole purpose of meeting the 3 million AED threshold, the Federal Tax Authority will consider it as an artificial separation to obtain a tax advantage[2]. In that case, the Authority can make compensating adjustments to the tax liability of the relevant taxable person.
TAX LOSS RELIEF AND INTEREST DEDUCTION LIMITATION RULE
Any tax losses and disallowed Net Interest Expenditure can be carried forward to a subsequent tax period, but only in tax periods where the Small Business Relief is not elected..
