In accordance with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law), the Ministry of Finance (MoF) has issued Ministerial Decision No. 73 of 2023 on Relief for Small Businesses.
This decision, based on Article 21 of the Corporate Tax Law, considers taxable persons as not having earned any taxable income if they fall below a certain threshold.
The purpose of Small Business Relief is to alleviate the corporate tax burden on start-ups and other small and micro businesses. However, the Ministerial Decision states that a taxable person can only opt for Small Business Relief if they meet the specified revenue threshold and fulfill other conditions. Consequently, the decision provides clarification on the treatment of carried forward tax losses and the disallowance of net interest expenditure under the Small Business Relief scheme.
As outlined in the Ministerial Decision on Small Business Relief:
- Resident taxable persons are eligible for Small Business Relief if their revenue in the previous and relevant tax period was below AED 3 million. Once a taxable person surpasses AED 3 million in revenue within a given tax year, they will no longer be eligible for Small Business Relief.
- The revenue threshold of AED 3 million applies to tax periods commencing on or after June 1, 2023. It will continue to apply to subsequent tax periods ending before December 31, 2026.
- Revenue can be determined according to UAE accepted accounting standards.
Additionally, as per Cabinet Decision No. 44 of 2020 on Organizing Reports Submitted by Multinational Companies, the Small Business Relief program is not available to Qualifying Free Zone Persons or members of Multinational Enterprise Groups (MNE Groups). MNE Groups are companies operating in multiple countries with combined revenues exceeding AED 3.15 billion.
Taxable persons who choose not to apply for Small Business Relief in a specific tax period can carry forward any incurred tax losses and any disallowed net interest expenditure from that period.
Regarding the artificial separation of business, the Ministerial Decision specifies that taxable persons can apply for Small Business Relief if the Federal Tax Authority (FTA) determines that they have artificially separated their business activities, resulting in total revenue exceeding AED 3 million for any tax period. In such cases, Article 50, Clause (1), regarding the general anti-abuse rules of the corporate tax law will be invoked to prevent a corporate tax advantage.
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