Introduction to Small Business Relief in UAE
What Is Small Business Relief?
In a move to bolster investment and support small businesses within the country, the Ministry of Finance introduced the Small Business Relief in UAE under Ministerial Decision No.73 of 2023. This relief framework is part of the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, promising to be a financial oasis for eligible enterprises. The Small Business Relief mechanism allows eligible businesses to be treated as having zero Taxable Income for a given tax period. What does it entail and how do small businesses claim their eligibility?
Eligibility Criteria for Small Business Relief in UAE
This relief system, outlined in Article 21 of the Federal Decree-Law No. 47 of 2022, allows eligible small businesses to treat their taxable revenue as zero for a particular tax period. This results in zero rate corporate tax payments for the relevant period, which is a significant advantage for small businesses.
Let’s consider “Glacier Gems,” a cozy jewelry boutique in the bustling streets of Dubai with an annual turnover of AED 2.5 million. This falls neatly under the AED 3 million threshold in each eligible period, Glacier Gems becomes a prime candidate for the UAE Small Business Relief, enjoying a no corporate tax payable from June 1, 2023, however, should their fortunes swell beyond the AED 3 million mark in 2024, they would no longer qualify for this relief moving forward.
Benefits of Small Business Tax Relief in UAE
Businesses under the relief are treated as having no taxable income, eliminating the need for corporate tax calculations. This effectively allows qualified small companies to keep more of their hard-earned money, creating a favorable ecosystem for investing and development.
Furthermore, this relief is effective throughout numerous tax seasons, as long as the business fulfills the eligibility conditions. As a result, it represents a long-term benefit for small businesses, fostering constant support over time.
Limitations for Small Business Relief Eligibility
While broad in scope, the relief does omit certain entities such as members of Multinational Enterprise Groups with revenues above AED 3.15 billion and Qualifying Free Zone Persons who already benefit from a 0% Corporate Tax rate on specific incomes.
Following our example, if “Glacier Gems” maintains its status as an independent entity, free from multinational conglomerate ties or qualifying free zone affiliations, it retains its eligibility for the Small Business Relief in UAE.
The small business relief stands alone, which means that it cannot be combined with other tax exemptions, reliefs, or deductions under this program. Furthermore, while transfer pricing documentation is waived, the arm’s length principle must be observed in order to guarantee that all transactions are fair and equitable.
Restrictions on Tax Losses and Interest Expenditure
An important aspect for small businesses under this relief is the handling of tax losses and net interest expenditure. Entities that use the Small Business Relief in UAE cannot carry over any tax losses or net interest expense made during the relief period to later tax periods; these restrictions resume after the relief period expires. If “Glacier Gems” incurs a tax loss in 2024 during the relief period, it cannot carry this loss forward to subsequent tax accounting years.
Corporate Tax on General Anti Abuse Rule
The General Anti-Abuse Rule (GAAR) in the UAE’s Corporate Tax Law is designed to prevent artificial arrangements solely aimed at gaining an unfair tax advantage. Applied to the Small Business Relief in UAE program, this regulation discourages and penalizes efforts to exploit the system through:
- Artificial Separation of Business: If the Federal Tax Authority (FTA) determines that a business has intentionally split its operations solely to meet the AED 3 million revenue threshold and qualify for small business relief, it will be considered an abusive arrangement under GAAR.
- In such cases, the FTA can:
- Disallow the application of small business relief for the affected entities.
- Recalculate the tax liability based on the combined revenue of the separated entities, potentially leading to significant tax payments.
- Impose penalties for non-compliance.
Conclusion
The Ministry of Finance introduced the Small Business Relief in UAE under Ministerial Decision No.73 of 2023 as part of the Federal Decree-Law No. (47) of 2022. This temporary relief is for businesses with annual revenue below AED 3 million. It means no corporate tax is payable on their taxable income within the eligible period. This relief is applicable for tax periods starting on or after June 1, 2023, and ending before December 31, 2026.
Small business relief in UAE is a lifeline in difficult times for small businesses. Remember that claiming a relief is more than just getting through the storm; it is also about preparing your business for success in the calm that follows. So, don’t be scared to dive in, consider your options, and demand the help your organization requires.
How Can We Help
The implementation of small-business relief in UAE inside the corporate tax structure represents the turning point for small enterprises, acquiring and using it requires a detailed understanding of the terrain. Adam Global boasts a team of qualified tax advisors who can help you achieve greater awareness about the qualifying requirements, advantages, and restrictions, allowing you to manage the complex rules of Small Business Relief in UAE.
For further information on Corporate Tax Law and other related services, you may email us at info@dubaibusinessadvisors.com or contact us thru WhatsApp +971 4 341 9701.
