On April 6th, 2023 the Ministry of Finance issued Ministerial Decision No. 73 of 2023 on Small Business Relief (the “Small Business Relief Law”). Reference is made to our Client Alert No. TAX-03-22 On the Taxation of Corporations and Businesses in the UAE, whereby we outlined the advent of Federal Decree-Law No. (47) of 2022 (the “Corporate Tax Law”) and its enforceability as of June 1st, 2023.
The Small Business Relief Law was issued in accordance with Article 21 of the Corporate Tax Law, which allows for a taxable person that is a resident person to elect to be treated as not having derived any taxable income. The conditions outlined by the new Ministerial Decision are as follows:
i. Entities which would otherwise be considered taxable persons under the Corporate Tax Law can now claim Small Business Relief where their revenue is below AED 3 million during a taxable year. However, taxable persons shall not qualify under the Small Business relief if their revenue in any relevant or previous tax period has exceeded the AED 3 million threshold.
ii. The above threshold will apply to tax periods starting as of the date of enforceability of the Corporate Tax Law (June 1st, 2023), and will continue only for tax periods ending on or before December 31st, 2026.
iii. Free Zone companies already qualifying for an exemption from corporate income tax, as well as multinational enterprise groups with operations in more than one jurisdiction with consolidated group revenues of more than AED 3.15 billion, will not be able to claim Small Business Relief.
iv. If an entity eligible to benefit from Small Business Relief does not elect to opt for the relief, unclaimed tax losses and net interest expenditure may be carried forward for use in future tax periods.
An additional caveat is made, stipulating that in scenarios where a taxable entity artificially splits its operations so as to fall below the AED 3 million threshold, the Federal Tax Authority will consider this as an abuse of the relief. In such cases, the Federal Tax Authority will make the compensating adjustments to the corporate tax liability of said entities.
Our Dubai, Abu Dhabi and ADGM teams continue to stay abreast of the implications that the Corporate Tax Law and its related regulations will have on your activities, and will continue to guide you and your business through the UAE corporate landscape.