Small Business Relief for the Purpose of Taxation of Corporations and Businesses

Ministerial Decision No. 73 of 2023 provides relief to small Businesses, aimed at easing their corporate tax burden and reducing compliance costs. The Decision stipulates a revenue threshold that qualifies for tax relief. Thus, it is advisable for small businesses to seek the expert services of Tax Consultants in UAE to establish their taxability and to avail tax relief in compliance with the UAE corporate tax law. 

What is the Qualifying Revenue Threshold?

The decision stipulates that resident persons with revenue in the pertinent tax span and prior tax duration lower than three million dirhams for each tax period will be eligible for Small Business Relief. However, if a taxable person exceeds the revenue threshold of AED 3 million in any tax period, they will no longer be qualifying for the relief. This revenue threshold will come into effect for tax periods starting from June 1st 2023 and will be valid for successive tax duration that concludes before or on December 31, 2026.

How to Determine Dividends?

The process of ascertaining revenue for the purpose of Small Business Relief is based on the accounting standards acknowledged in the United Arab Emirates. Businesses are allowed to utilize the same accounting standards they use for preparing their financial statements to determine their revenue. The applicable accounting standards provide guidance on the appropriate methods for recording and recognizing revenue, which ensures accuracy and consistency in determining revenue. Using the same accounting standards for Small Business Relief as for financial statements streamlines the process and minimizes the risk of errors or discrepancies. This approach also ensures that businesses can easily demonstrate compliance with the Revenue threshold of AED 3 million sets for Small Business Relief.

Exclusion From Small Business Relief as Per Corporate Tax Law

Businesses that are categorized as Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups) cannot avail of Small Business Relief. The Ministerial Decree on Organizing Report Filed by multinational corporations defines MNE Units as associations of businesses with activities across more than one country and aggregated collective earnings that exceed more than 3.15 billion dirhams. This implies that only resident individuals who do not belong to ME Groups or Qualifying Free Zone Persons are eligible for Small Business Relief. Therefore, businesses belonging to these categories are not eligible for the tax incentives provided under Small Business Relief.

Read More: How to Reduce Your Small Business Tax Burden

Haul Forward of Taxation Losses and Forbade Net Interest Expenses

In circumstances where corporations prefer not to pertain for micro Business recourse during the tax periods specified in the decision, they are allowed to carry forward any Tax Losses and any non-permissible total Interest Expenses incurred in such tariff intervals. These losses can be used in forthcoming tax stints where Micro Business relaxation is not elected, providing businesses with an opportunity to benefit from tax savings. This means that the tolls and prohibited net income expenses from tax periods where Small Business Relief was not elected can be carried forward and used to reduce tax liabilities in the future. This provision is particularly helpful for start-ups and small businesses that may not always have consistent revenue streams and may incur losses during the initial stages of their operations.

Artificial Separation of Business 

This exemption is not conferred to taxable persons who artificially segregate their enterprises or business operations and whose overall company or business activity revenue surpasses Dh three million in any tax quarter. It would be deemed an effort to acquire a corporation tax edge, the Federal Tax Authority (FTA) detects that an individual who is taxable has attempted to artificially divide their firm and has chosen to request for Small Firm Allowance. This is prohibited by the common anti-abuse provisions of the Corporation Tax Regulation. Therefore, this denotes that businesses cannot resort to this practice to avail of Small Business Relief if their total revenue exceeds AED 3 million. Therefore, it is essential for businesses to maintain transparency and integrity in their financial reporting and refrain from any practices that could be perceived as tax avoidance or evasion.

Seek the Expert Services of Corporate Tax UAE

Essentially, it is advisable for small businesses to seek the expert services of Tax Consultants UAE to establish their taxability and to avail tax relief in compliance with the UAE corporate tax law. Thus, contact us today and we shall be glad to assist you.   

Mostafa

Mostafa is a qualified Legal Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities.