A new Ministerial Decision offers relief for small businesses and start-ups

10 April 2023 - On 3 April 2023, the Ministry of Finance (MoF) of the United Arab Emirates (UAE) issued Ministerial Decision no. 73 which pertains to Small Business (SB) relief under article 21 of the Corporate Tax (CT) law (the Decision). The Decision outlines the following applicable threshold and the necessary conditions for a Resident Person to qualify for relief and accordingly elect to be treated as not having any taxable income for the relevant tax period:

• The revenue threshold for any tax period beginning on or after 1 June 2023, is set at AED 3 million. This threshold will remain in effect for subsequent tax periods ending on or before 31 December 2026.
• Revenues will be calculated based on applicable accounting standards accepted in the UAE.
• The relief will not apply to:
  • Constituent Companies of Multinational Enterprises Group (MNEs Group) with a consolidated revenue exceeding AED 3.15 billion, and
  • Qualifying Free Zone Persons.
• Electing taxpayers will not be able to carry forward any tax losses or disallowable net interest expenditures incurred during the tax period for which the election is made.

General Anti-abuse rules under article 50 of the CT law will apply if the Federal Tax Authority (FTA) determines that a taxpayer has artificially separated their business or business activity to qualify and elect for this relief.

Deloitte’s observations

The issuance of the Decision is a positive development as the introduction of a revenue threshold of AED 3 million is expected to provide significant relief to small businesses and start-ups. However, it is important to note that this threshold is only applicable for tax periods ending on or before 31 December 2026. To establish the applicable threshold for subsequent tax periods, a subsequent Ministerial Decision will be required.

It is also worth noting that while the relief provides for nil taxable income, it does not exempt businesses from the requirement to register and file a corporate tax return. Additionally, it is possible that branches of foreign companies may not be eligible for this relief, as they are not considered Resident Person.

For taxpayers considering the SB relief election, it is important to analyze the impact of this election on other CT provisions such as the tax grouping provision. Start-ups should evaluate whether claiming the relief would be beneficial for them, or if loss set off may be a better option if they anticipate higher revenues (profits) in subsequent tax periods.

Finally, while it is understood that the relief will be provided through an annual election submitted to the FTA, the Decision does not specify the procedure for making such an election.