UAE Offers Corporate Tax Relief for Small Businesses

UAE has always been a Tax Haven for residents of the country. Even though UAE is all set to introduce the Federal Corporate tax (CT) at 9 percent on the net profits of businesses, which will become applicable across the Emirates either on 1 July 2023 or on 1 January 2024 (depending on the financial year followed by the business), individuals would continue to remain exempt from income and capital-gains taxes, subject to meeting the stipulated conditions.

The UAE has taken the decision to introduce 9 percent Corporate Tax in order to meet international standards in transparency and to address challenges arising from the digitalization of the global economy. By following the Global Tax Rules, the UAE will continue to remain attractive for international business in the region.

The good news is that barring Bahrain, the UAE has introduced thelowest corporate income tax rate within the GCC region at a standard rate of 9 percent. Alongside the Corporate Tax Announcement in the region, the UAE’s FTA also announced great news to help SMES and Starts Ups in the region.

The UAE Ministry of Finance has issued a landmark decision on Small Business Relief allowing small businesses with revenues of AED 3,000,000 ($ 816,880) or less to claim tax relief in a tax period when their revenue does not exceed a certain threshold. This tax relief scheme aims to support startups and other small businesses by reducing their corporate tax burden and compliance costs.

In simple terms, taxpayers with revenue below the AED 3 million threshold are exempted from tax. The relief is available for tax periods starting on or after 1 June 2023 and ending on or before 31 December 2026.

For specific details please view the Issued 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.

Here are the key highlights of the Ministerial Decision on Small Business Relief:

  • The decision implies that taxable persons who are residents in the country can claim Small Business Relief when their revenue in the relevant and previous tax periods is below AED 3 million for each period. However, once a taxable person exceeds the revenue threshold in any tax period, then tax relief will no longer be available.
  • The authorities have specifically mentioned that small businesses’ revenue will be determined based on the applicable accounting standards accepted in the country.
  • Another point to be noted is that the new corporate tax will not apply to qualifying free zone entities or multinational companies as defined in Cabinet Decision No. 44 of 2020. The UAE defines multinational companies as groups of companies operating in multiple countries with consolidated group revenues exceeding AED 3.15 billion.
  • The ministry also specified that in tax periods where businesses do not elect to apply for Small Business Relief, they will be able to carry forward any incurred tax losses and any disallowed net interest expenditure for use in future tax periods in which the scheme is not elected.
  • Also note that with regard to the artificial separation of business, the Ministerial Decision iterates that where the Federal Tax Authority (FTA) establishes that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds AED3 million in any tax period and such persons have elected to apply for Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the Corporate Tax Law.

If you need more information on the Cabinet Decisions and Ministerial Decisions relating to Corporate Tax Law, please log on to their official website.

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Should you have further queries on the Corporate Tax Law and whether you qualify for the various exemptions listed by the CT Law, please feel free to get in touch with our Tax Experts on WhatsApp.