The Ministry of Finance has issued Ministerial Decision No. 73 of 2023, dated 03rd March, 2023, on Small Business Relief for the purposes of the Corporate Tax Law.
The new Ministerial Decision allows small businesses with Revenue of less than AED 3 million to claim relief from corporate tax. The relief will only be available for tax periods starting on or after 1 June 2023 and ending before or on 31 December 2026.
According to the new Ministerial Decision, the relief is unavailable to Qualifying Free Zone Persons or members of Multinational Enterprises Groups with consolidated group revenues exceeding AED3.15 billion. Also, the revenue threshold applies to the relevant and previous tax periods. Once a taxable person exceeds the AED 3 million threshold in any tax period, the Small Business Relief will no longer be available.
Small businesses that do not elect to apply for Small Business Relief in a tax period can carry forward any incurred Tax Losses and any disallowed Net Interest Expenditure from such tax periods for use in future tax periods where the relief is not elected.
Whilst this decision provides great relief for small businesses, it emphasizes and places more importance on them maintaining appropriate accounting and financial records in accordance with the IFRSs in the UAE. As per the Ministerial Mater Article (2) clause (4), the Revenue shall be determined following the applicable accounting standards accepted in the State.
The Ministerial Decision also includes provisions on the artificial separation of business, which prohibits taxable persons from artificially separating their business or business activity to obtain a Corporate Tax advantage under the general anti-abuse rules of the Corporate Tax Law.
This decision is expected to provide significant relief for small businesses in the UAE.