Ministerial Decision No. 73 of 2023 on Small Business Relief has been issued by the Ministry of Finance to provide clarification in accordance with Article 21 of the Corporate Tax Law. The Decision provides specific reliefs to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs.
The Decision details material aspects including the revenue threshold, conditions to elect for small business relief, provisions of the carried-forward tax losses, and disallowed net interest expenditure under small business relief have been stipulated. In this blog, we provide further clarity on how the Decision can benefit you.
What are the conditions to be met?
In accordance with Ministerial Decision, the following criteria must be satisfied to be eligible:
- A taxable person must be a resident.
- The revenue in the current and previous tax periods is below AED 3 million for each tax period.
- The revenue threshold will apply starting June 1, 2023, through December 31, 2026.
- Qualifying Free Zone Persons or members of Multinational Enterprises Group (MNE Group) will not be eligible for the relief.
In summary, a taxable resident person must incur a turnover of less than AED 3 million from the previous and current tax years with. revenue determined on the applicable accounting standards accepted in the UAE. This means, if revenue has been breached in any tax period, the relief will no longer apply.
To assure compliance, The Federal Tax Authority (FTA) may request any relevant information or records from the Taxable Person within the timelines to be prescribed.
It should be noted that the Small Business Relief Scheme is set with a “Sunset Clause” and eligible for tax period June 1, 2023, through December 31, 2026. Subsequently the taxable person will fall into the standard 9% corporate income tax scheme.
What relief does the Scheme provide?
Upon the election to the Scheme and upon fulfillment of the conditions, a Taxable Person shall be treated as not having derived any Taxable Income for the Tax Period. Therefore, no tax payment will be required.
What will happen if the business does not avail the ReliefIs there an automatic enrolment to the Scheme?
The Taxable person eligible for Relief would need to elect for the Relief and comply with all other prescribed conditions. If the business opts not to apply for the small business relief, any tax losses and disallowed net interest expenditure are allowed to carry forward for future tax periods use.
Do companies still need to register for the corporate tax if they are eligible for the relief?
, Aall entities doing business in the UAEsubject to Corporate Tax are required to register for the corporate tax regardless of if they meet the Small Business Relief conditions or not.
Who are ineligible for the Scheme?
The scheme is ineligible for:
- 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)
Considerations Of Electing The Scheme
Taxable Persons should consider the benefits of joining the Scheme in the light of the following restrictions:
- 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.
- Net Interest Expenditure
- 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.
- Other Matters
- A Taxable person is not entitled to claim the benefit of deductions under Chapter Nine and enjoy reliefs under Chapter Eight of the Corporate Tax Law.
- Similarly, the Taxable person shall not be able to enjoy exemptions for the calculation of taxable income as contained in Chapter Seven of the Corporate Tax Law.
- The Taxable person is not required to file Transfer Pricing Documentation for transactions with its Related Parties and Connected Persons.
Is artificial separation of business allowed?
It was indicated underon the Ministerial Decision that if the FTA observed that the taxable person had artificially separated its business to apply for the Relief and that the consolidated revenue of the company exceeded the AED 3 million threshold, this would be considered an arrangement to take advantage of the Ccorporate Ttax under the Ggeneral Aanti-Aabuse Rrules (GAAR) of the Ccorporate Ttax Llaw (Clause 1 of Article 50). The FTA may determine that any such corporate tax advantage obtained is to be counteracted or adjusted.