The Ministry of Finance (‘MoF’) has issued Ministerial Decision No. 73 of 2023 on Small Business Relief following Article 21 of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘Corporate Tax Law’).
We have highlighted some key matters that may be relevant for your business.
Covered persons:
UAE resident juridical persons or individuals below the specified threshold
Non-covered persons:
- Qualifying Free Zone persons
- Members of Multinational Enterprises Groups (MNE Groups) defined in Cabinet Decision No. 44 of 2020 (Country by Country Reporting Regulation)
What is the amount of relief?
Small businesses with revenue of less than AED 3 million (approximately USD 817,000) in the current and previous tax periods shall be treated as having no taxable income during the relevant tax period.
From what tax period can small businesses benefit?
Any financial year for the business starting on or after 1 June 2023.
When will the relief be phased out?
The threshold for the relief will continue to apply to subsequent tax periods that end before or on 31 December 2026. This essentially means that the relief will stay applicable for three tax years.
Can we benefit from it automatically?
No; the businesses will have to make an election to the Federal Tax Authority.
Would the tax relief change the tax reporting obligations of a covered person?
The covered person should continue to prepare financial statements and corporate tax returns during the relief period.
What happens if the amount of revenue exceeds 3 million during the tax period?
The relief will not be available. The revenue will be determined based on acceptable accounting standards in the UAE.
Can the covered persons benefit from the interest deduction relief, the taxable carry forward loss relief, and tax grouping and tax re-structuring relief?
Where the covered person elects to benefit from the Small Business Relief, the covered person will not have access to the reliefs under CT law.
Would the covered person need to maintain Transfer Pricing documentation?
The covered person would not need to maintain Transfer Pricing documentation. However, the covered person would still need to conduct transactions with related parties and connected persons at arm’s length.
Is there an anti-abuse clause?
Yes. If a person with total revenue of more than AED 3 million artificially separates his/her business to claim benefits under Small Business Relief, it will be considered an arrangement to obtain a Corporate Tax advantage under the General Anti-Abuse Rules (GAAR) set out in Article 50 of the Corporate Tax Law.
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