Ministry of Finance announces Small Business Relief on the Corporate Tax
The Ministry of Finance (MoF) has issued Ministerial Decision on Small Business Relief on the Corporate Tax Law. Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. The Ministerial Decision on Small Business Relief specifies the revenue threshold and conditions for a taxable person to elect for Small Business Relief and clarifies the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief scheme.
The decision is issued in accordance with Article 21 of the Corporate Tax Law, which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold.
According to the decision, taxable persons that are residents can claim Small Business Relief where their revenue in the relevant tax period and previous tax periods is below AED3 million for each tax period. This means that once a taxable person exceeds the AED3 million revenue threshold in any tax period, then the Small Business Relief will no longer be available.
Kunal Bilakhia, Managing Partner at Taxpro Advisors, clarified. “Small business relief with regards to Corporate Tax in UAE, is exactly that - a relief for small businesses, be it startups, freelancers, or any other business that have small time operations - they will be able to take advantage of this scheme.” However, there are of course conditions to fulfil before any business can claim such a relief.
Bilakhia added, “The six conditions have been laid out with the intention to avoid misuse of this relief. Genuine small business will benefit from this while people trying to dupe the system will be easily caught within the anti-abuse rules of the new Corporate Tax law.”
The small business relief is practically going to last for a maximum of three reporting years ending on or before 31 December 2026. After which, the relief will cease, and businesses will pay the regular rate of corporate tax (9 percent) from next reporting period.
Pankaj Jain, Managing Director for AskPankaj Tax Advisors, pointed out that “in practical terms, it will give the SME sector a cushion to adapt and adjust to the forthcoming tax regime”.
According to both Bilakhia and Jain, as of now, there is no written confirmation that 'audited' financial statements will be required to be filed along with the annual tax returns, but it seems very likely that the tax authority will rely on figures to be audited by registered audit firms in UAE.
Jain explained, “Small business relief does not exempt the eligible businesses from the corporate tax law itself. The businesses need to still register for corporate tax and submit the annual tax return. They will also need to maintain comprehensive accounts, records and documents. It is more likely than not that annual balance sheets would be needed to demonstrate eligibility for this relief.”
Small Business Relief will not be available to qualifying Free Zone persons or members of multinational enterprises groups (companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion).
In tax periods defined in the decision 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 from such tax periods, for use in future tax periods in which the Small Business Relief is not elected.