UAE Corporate Tax Update: Insights into the Small Business Relief Ministerial Decision

Corporate tax (CT) has a considerable impact on the small and medium enterprises (SMEs) segment in the UAE. SMEs play a fundamental role in the growth of the country’s economy. The UAE government has recently introduced Small Business Relief (SBR) for small businesses and startups to provide an attractive business landscape for the SMEs.

Let us dive into the key aspects of the Ministerial Decision on Small Business Relief as introduced by the government.

The Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief, which is in accordance with Article 21 of the Corporate Tax Law.

The Small Business Relief is intended to support start-ups and other small or micro businesses by helping them to reduce their Corporate Tax burden and compliance costs.

The critical points in the Ministerial decision are mentioned below:

1. Taxable persons that are residents can claim the Small Business Relief where their revenue in the relevant tax period is below AED 3 million.
2. This exemption will be applicable for the tax periods starting on or after June 01, 2023, and only until the tax periods ending on or before December 31, 2026.
3. However, once the revenue exceeds the threshold of AED 3 million in any particular tax period, this relief will not be available in any subsequent tax periods.
4. The Companies which are part of Multinational Groups or fall under the definition of Qualifying Free Zone Persons will not be eligible to claim this exemption.
5. The Companies who do not elect to apply for Small Business Relief will be able to carry forward any incurred tax losses and any disallowed net interest expenditure.
6. However, if the taxable persons have artificially separated their business activity and revenues to claim this benefit, then it will be considered as an arrangement to obtain Corporate Tax advantage as per General Anti- Abuse Rules of Corporate Tax.

We expect the SME sector to face increased compliance due to the introduction of Corporate Tax. However, the revenue generated from Corporate Tax can be used to improve the business environment for the SMEs through structured infrastructure development and subsidies being granted to them. Also, the introduction of this Ministerial Decision is expected to bring relief to many micro, small and startup businesses in the UAE assisting them in reducing their overall costs.

Therefore, it is integral for the SMEs to take advantage of the available exemptions and relief measures introduced by the authorities and continue being a pivotal player to the UAE’s business landscape.