Tax Relief to Support Small Businesses
The United Arab Emirates will soon be introducing Corporate Tax, effective for financial years starting on or after 1 June 2023, applicable on the net profit of companies or other businesses in accordance with Federal Law No.47 of 2022 on Taxation of Corporations and Businesses.
On 6th April 2023, 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 has been issued, prescribing conditions for Small Business Relief.
Key aspects are as follows:
Key Aspects of ‘Small Business Relief’
- Who can claim relief – Resident taxable persons (legal / juridical or individual)
- Criteria for relief – Annual revenue in the relevant and previous tax periods is below AED 3 million
- Relief available from which tax period – Tax periods starting on or after 1 June 2023
- Relief available upto which tax period – Tax periods ending before or on 31 December 2026
- Who cannot claim relief – “Qualifying Free Zone Persons” or “Entities forming part of MNE groups with consolidated group revenues of more than AED 3.15 billion”.
- Carry forward of “Tax Loss” and “Excess Net Interest Expenditure” allowed for the tax periods where Small Business Relief not elected
- Anti-abuse provisions would apply in case of artificial separation of business to take benefit of Small Business Relief
Detailed Summary
Who is Eligible for Small Business Relief?
- Any Taxable Person’s (being a Resident Person) having revenue for the relevant Tax Period and previous Tax Periods below AED 3 million can claim Small Business Relief envisaged in Article 21 of the Corporate Tax Law. Revenue shall be determined based on the applicable accounting standards accepted in the UAE.
- The threshold set out shall apply to Tax Periods commencing on or after 1 June 2023 and shall continue to apply to only subsequent Tax Periods that end before or on 31 December 2026.
- Where the Revenue for any Taxable Person exceeds the threshold of AED 3 million in any relevant or previous Tax Period, the above-mentioned Relief would not be available.
- The Federal Tax Authority (FTA) is empowered to verify the compliance of Article 21 and may request any relevant information or records from the Taxable Person within the timelines to be prescribed.
Who are not eligible for the Small Business Relief?
- A qualifying Free Zone Person; and
- A Constituent Company of a Multinational Enterprises Group (MNE Groups) as defined in Cabinet Decision No. 44 of 2020. 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.
Tax Loss Relief Rule
- Any Tax Losses incurred in such Tax Periods cannot be carried forward to any subsequent Tax Periods.
- Any unutilized Tax Losses incurred in previous Tax Periods where an election to apply the Small Business Relief was not made, may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made subject to the conditions of Article 37 of the Corporate Tax Law.
Interest Deduction Limitation Rule
- Where an election to apply for the Small Business Relief is made in a Tax Period, any Net Interest Expenditure incurred in such Tax Period cannot be carried forward to any subsequent Tax Periods.
- Any Net Interest Expenditure incurred in previous Tax Periods where an election to apply the Small Business Relief was not made may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made.
Artificial Separation of Business
- The Ministerial Decision also mentions that any artificial separation of Business or business activity to meet the AED 3 Million thresholds and to take advantage of the Small Business Relief, would be considered an arrangement to obtain a Corporate Tax advantage under the General Anti-Abuse provisions of the Corporate Tax Law.
- The FTA may make a determination that any such corporate tax advantage obtained is to be counteracted or adjusted.