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- The UAE Ministry of Finance has raised the minimum corporate tax threshold for small and micro businesses, start-ups and freelancers from US$100,000 (AED375,000) to US$816,000 (AED3 million).
- The Small Business Relief Act is designed to support start-ups and other small or micro businesses by reducing the tax burden on businesses.
- The law will come into force in early June 2023 and run until the end of December 2026.
source: Wan
The Ministry of Finance (MoF) has issued Ministerial Decision No. 73 of 2023 on Relief for Small Businesses to comply with Federal Decree No. 47 of 2022 on Taxation of Companies and Enterprises (Corporate Tax Act).
The decision was issued under Section 21 of the Corporation Tax Act, which treats taxpayers as not earning any taxable income if their income does not exceed a certain threshold in a given tax period.
Small business relief is designed to support start-ups and other small or micro businesses by reducing business tax and compliance costs. The Ministerial Decision on the Small Business Relief sets out the income thresholds and conditions for taxpayers to opt for the Small Business Relief and clarifies the provisions for tax losses carried forward and disallowed net interest payments under the Small Business Relief Scheme.
The Ministerial Decision on Small Business Relief provides for the following:
1. Resident taxpayers can apply for small business relief if their income in the relevant and previous tax periods is less than AED 3 million per tax period. This means that once a taxpayer exceeds the AED 3 million income threshold in any tax period, the small business relief will no longer apply.
2. The income threshold of AED 3 million will apply for tax periods beginning on or after 1 June 2023 and will only continue to apply for subsequent tax periods ending before or after 31 December 2026.
3. Revenue may be determined in accordance with applicable accounting principles accepted by the UAE.
4. Under Cabinet Decision No. 44 of 2020 on organizing reports filed by MNEs, eligible free zone persons or members of Multinational Enterprise Groups (MNE Groups) will not be eligible for small business relief. A multinational conglomerate is a group of companies operating in more than one country with consolidated group revenues in excess of AED 3.15 billion.
5. Businesses will be able to carry forward any tax losses incurred and any disallowed net interest expense incurred during the tax period specified in the decision not to elect to apply for the small business relief for future tax periods in which the small business relief was not elected out.
6. Regarding the artificial separation of business, the Ministerial Decision stipulates that if the Federal Tax Authority (FTA) determines that the taxpayer has artificially separated its business or business activities, and the total income of the entire business or business activities exceeds AED 3 million in any tax period If such persons elect to apply for the small business relief, this will be considered an arrangement to obtain corporate tax advantages under Section 50(1) of the general anti-abuse rules of the corporate tax law.
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