UAE announces corporation tax reductions for startups and small companies

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”) has been amended by Ministerial Decision No. 73 of 2023 on Small Business Relief.

According to Article 21 of the Corporate Tax Law, which treats the taxable person as not having obtained any taxable income in a certain tax period when the revenue did not exceed a specific threshold, the judgment is made by that provision. Small Business Relief lowers the corporate tax burden and compliance expenses for start-ups and other small or micro firms.

The Ministerial Decision on Small Business Relief defines the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief program. It also outlines the revenue threshold and requirements for a taxable person to elect for Small Business Relief.

The following is outlined in the Ministerial Decision on Small Business Relief:

If the revenue for the relevant tax period and the two prior tax periods was less than Dhs3 million for each tax period, then Taxable Persons who are Residents may claim Small Business Relief.

This means that the Small Business Relief will no longer be accessible if a taxable person crosses the Dhs3 million revenue threshold in any tax month. The Dhs3 million revenue barrier will only continue to be applicable for consecutive tax periods that expire before or on December 31, 2026, beginning with tax periods beginning on or after 1 June 2023.

Based on the applicable accounting standards recognized in the UAE, revenue can be calculated. Qualifying Free Zone Persons and members of Multinational Enterprise Groups (MNE Groups), as defined in Cabinet Decision No. 44 of 2020 on Organizing Reports Submitted by Multinational Companies, are not eligible for Small Business Relief.

Businesses will be able to carry forward any incurred Tax Losses and any disallowed Net Interest Expenditure from the decision-defined tax periods for use in subsequent tax periods where the Small Business Relief is not elected. This applies to tax periods where businesses do not elect to apply for Small Business Relief. According to the Ministerial Decision, when the Federal Tax Authority (FTA) determines that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds Dhs3 million in any tax period and such persons have chosen to apply for Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage.

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