The Ministerial Decision No. 73 of 2023 has been issued by The Ministry of Finance (‘MoF’) on Small Business Relief in accordance with Article 21 of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘Corporate Tax Law’). This relief will apply only to UAE Resident juridical persons or individuals below the specified threshold.
Who is concerned
You are an SME with revenues of $816,880 (Dhs 3M) or less. You can claim relief in a tax period because your revenue does not exceed the threshold. Such measures aim to support startups and other small or micro businesses by reducing their corporate tax burden and compliance costs.
What Is Small Business Relief?
Small Business Relief refers to the tax incentives provided to SMEs in the UAE whose revenues do not exceed the specified threshold. This measure is aimed at reducing corporate tax burdens for smaller businesses, enabling them to focus on growth and sustainability.
Under this initiative, UAE resident juridical persons or individuals with revenue below AED 3 million (approximately $816,880) can benefit from reduced corporate tax obligations for specified tax periods.
How to Apply for Small Business Relief?
To apply for Small Business Relief, taxable persons must:
Ensure their revenue falls below the AED 3 million threshold in the relevant tax period.
Prepare financial statements according to accounting standards accepted in the UAE.
Submit accurate corporate tax returns, highlighting their eligibility for relief.
Businesses should consult tax professionals to ensure proper documentation and compliance during the application process.
Who Qualifies for Small Business Relief?
Not all businesses are eligible for Small Business Relief. To qualify, you must:
Be a UAE-resident taxable person.
Have annual revenue below AED 3 million for the relevant and previous tax periods.
Exclusions: The following entities do not qualify:
Qualifying Free Zone Persons
Members of Multinational Enterprise Groups (MNE Groups): Defined under Cabinet Decision No. 44 of 2020 (Country by Country Reporting Regulation).
Additionally, businesses artificially splitting operations to fall under the threshold may face scrutiny and penalties.
What Are the Rateable Value Thresholds?
The revenue threshold of AED 3 million applies to:
Tax periods starting on or after 1 June 2023.
Tax periods ending on or before 31 December 2026.
If your revenue exceeds AED 3 million in any tax period, you will no longer qualify for the relief.
What Discounts Are Available for Small Businesses?
While Small Business Relief focuses on tax reductions, eligible businesses can also benefit from:
Deferred tax payments for specific periods.
Loss carryforward options: Taxable persons not electing for relief can carry forward business losses for future offset.
These measures aim to ease financial constraints, allowing businesses to allocate resources more effectively.
How Does the Sliding Scale Work for Tax Relief?
Although the UAE does not apply a traditional sliding scale for Small Business Relief, businesses with marginally higher revenue may explore opportunities to optimize tax liabilities through strategic planning, such as aligning operations and costs to meet compliance standards.
Conditions for small Business Relief:
The highlights of the Small Business Relief provision are:
Resident Taxable persons should have revenue less than AED 3 million in the relevant and previous tax periods. The relief will not be available if the threshold exceeds AED 3 million in any tax period. Accounting standards accepted in the UAE will determine the revenue.
The revenue threshold will apply to tax periods starting on or after 01 June 2023. It will only continue to apply to subsequent tax periods that end before or on 31st December 2026.
The Relief will not be available to the following businesses
Qualifying Free Zone Persons
Members of Multinational Enterprises Groups (MNE Groups) defined in Cabinet Decision No. 44 of 2020 (Country by Country Reporting Regulation)
Taxable persons will be able to carry forward and set off business losses in financial years where the business does not elect to apply for the Small Business Relief
The FTA considers that persons with total revenue of more than AED 3 million artificially separating their business to claim benefit under the Small Business Relief, are an arrangement to obtain a Corporate Tax.
Conclusion
Small Business Relief is a crucial support mechanism for SMEs in the UAE, enabling them to reduce their tax burden and focus on growth. To maximize this benefit, businesses must ensure compliance with revenue thresholds, maintain accurate records, and align with accepted accounting standards.
Ready to explore your eligibility or need assistance with your tax filings? Contact CTC Accounting to ensure you make the most of Small Business Relief and other corporate tax advantages.
FAQ
Can new businesses claim Small Business Relief?
Yes, new businesses can qualify as long as their total revenue for the tax period remains below AED 3 million. It’s crucial to maintain accurate financial records and submit proper documentation during the tax filing process.
Can Small Business Relief be claimed retroactively?
No, Small Business Relief cannot be applied retroactively. Businesses must claim it during the relevant tax period by filing their tax returns on time and ensuring all eligibility criteria are met.
What are the consequences of incorrectly claiming Small Business Relief?
Businesses that inaccurately claim relief may face significant penalties, including fines and backdated tax liabilities. The Federal Tax Authority (FTA) may also initiate an audit to verify compliance, leading to potential disruptions in operations.
What documentation is required to qualify for Small Business Relief?
To qualify, businesses must submit financial records prepared in accordance with UAE-approved accounting standards. These include revenue statements, contracts, and invoices. All records must be retained for at least five years to comply with FTA regulations.
What tax relief options are available for businesses exceeding the threshold?
Businesses with revenue above AED 3 million can explore alternative tax benefits, such as loss carryforwards or deductions for allowable expenses. A tax advisor can help identify the best strategies to minimize tax liability while remaining compliant.