A foundation for Small Business Relief is provided by the corporate tax law in UAE, which went into effect on June 1st 2023. According to the Corporate Tax Law, small enterprises that meet the requirements to be considered Resident Persons can choose to be classified as having no taxable revenue for a tax period, in which case they would pay no Dubai corporation tax rate. The requirements that residents must satisfy in order to be eligible for small business relief were laid forth in Ministerial Decision No. 73 of 2023, which was released in April 2023.
Small Business Relief – corporate tax law in UAE
1) Only resident taxpayers with incomes under AED 3 million in the applicable tax year and each of the prior tax years are eligible to claim the SBR. If a company’s revenue for any tax period exceeds AED 3 million, it is not eligible to claim SBR.
2) The AED 3 million revenue barrier will be in force from June 1, 2023, through December 31, 2026. This means that companies may submit SBR claims for tax periods beginning after June 1, 2023, but before December 31, 2026.
3) The revenue can be determined using the UAE-specific accounting standards.
4) Businesses may carry forward their tax losses and disallowed net interest spending to future taxable years where SBR is not elected during tax periods where they do not elect SBR.
5) The ruling states that if FTA finds evidence of a taxable person artificially separating their business or business activity and claiming SBR when their revenue exceeds AED 3 million, this will be regarded as a scheme to get a CT advantage under CT law.
Small Business Relief is not applicable to:
a) Eligible Free Zone Residents
b) individuals who are a part of MNE Groups, as specified by Cabinet Decision No. 44 of 2020. MNE groups are businesses with annual sales of over AED 3.15 billion that operate in many nations.
In accordance with the General Anti-Abuse provisions of the Corporate Tax Law in UAE, any artificial separation of a business or business activity in order to reach the AED 3 Million threshold and qualify for the Small Business Relief is also mentioned in the Ministerial Decision. The FTA has the authority to decide whether any such corporation tax advantage should be offset or altered.
The Ministry of Finance’s decision to lower corporation tax rates and compliance expenses for start-ups and other minor or micro firms is a welcome move.