Ministry of Finance has issued Ministerial Decision No, 73 of 2023 on “Small Business Relief” for the purpose of Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses. 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 does not exceed a certain threshold. The threshold and certain conditions have now been specified in this Ministerial Decision.
Below are the key highlights of the decision-
- Threshold : The relief will be available to Resident taxable personswith revenue below AED 3 millionin the relevant tax period and previous 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.
- Eligibility : Business need to elect to be treated as Small Business under Corporate Tax. Such 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 AED 3.15 billion.
- Date of limitation of relief : Relief will only apply to tax periods starting on or after 1st June 2023 till tax period that ends before or on 31st December 2026.
- Determination of revenue : Revenue can be determined based on the applicable accounting standards accepted in the UAE.
- In case of election : In case a business elects to be treated as Small Business, it will not be required to compute taxable income for a given tax period. Also, the following provisions shall not apply:
- Exemption of Income as specified in Chapter Seven of this Decree-Law.
- Reliefs as specified in Chapter Eight of this Decree-Law.
- Deductions form income as specified in Chapter Nine of this Decree-Law.
- Set off & carry forward of Tax Loss relief as specified in Chapter Eleven of this Decree-Law.
- Article 55 of this Decree-Law. (Transfer pricing Documentation)
Where small business do not elect to apply for Small Business Relief, they shall be able to avail all aforementioned relief, benefits and 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.
- Artificial separation : In case of artificial separation of business or business activity and the total revenue of the entire business or business activity exceeds AED 3 million, this would be considered an arrangement to obtain a Corporate Tax advantage and GAAR provisions shall apply.
The intention of the decision is to provide relief to Small Business Relief like start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. Small businesses can now elect to be treated as Small Business for the purpose of Corporate Tax based on the threshold and other conditions specified above.