The Ministry of Finance in the UAE has recently 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. This decision is aimed at reducing the tax burden and compliance costs for small businesses and start-ups.
Under this decision, a taxable person is considered to have not derived any taxable income in a given tax period if their revenue did not exceed a certain threshold. Small Business Relief can be claimed by resident persons whose revenue in the relevant tax period and previous tax periods is below AED3 million for each tax period. However, if a taxable person exceeds the AED3 million revenue threshold in any tax period, Small Business Relief will no longer be available.
The AED3 million revenue threshold will apply to 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. Revenue can be determined based on the applicable accounting standards accepted in the UAE.
It’s important to note that 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.
In tax periods 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.
The Ministerial Decision also addresses the issue of the artificial separation of business. If 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.
Small Business Relief is a welcome relief for small businesses and start-ups in the UAE. By reducing their tax burden and compliance costs, small businesses can channel their resources towards growth and development, which in turn benefits the economy. It is important for small businesses to familiarize themselves with the provisions of the Ministerial Decision and take advantage of Small Business Relief if they are eligible.
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