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UAE Corporate tax: Small Business Relief scheme to support start-ups

This is distinct from 0% corporate tax rate applicable to "taxable income" up to Dh375,000

The UAE Ministry of Finance has recently issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of the UAE Corporate Tax Law. The relief is designed to support start-ups and small businesses with limited resources to meet the compliance burden associated with corporate tax. The Small Business Relief will be available to UAE resident taxable persons with revenues below Dh3 million for the relevant tax period and previous tax period each respectively. When the eligible business elects to apply the relief, the business will effectively not be subject to corporate tax since it is treated as not deriving any “taxable income” in the relevant tax period.

The Small Business Relief is distinct from 0 per cent corporate tax rate applicable to "taxable income" up to Dh375,000. Where the Small Business Relief is claimed for a relevant tax period, the business cannot claim certain reliefs or deductions during that tax period. Therefore, it is important for businesses to carefully assess whether they qualify for the relief and if the relief will be beneficial to them.

What is the relief that these businesses will get?

The UAE Ministry of Finance has recently issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of the UAE Corporate Tax Law. The relief is designed to support start-ups and small businesses with limited resources to meet the compliance burden associated with corporate tax.

The Small Business Relief will be available to UAE resident taxable persons with revenues below Dh3 million for the relevant tax period and previous tax periods. This means that if a taxable person has exceeded, or exceeds the Dh3 million revenue threshold in any tax period, then the Small Business Relief will no longer be available.

The Small Business Relief does not apply to qualifying free zone persons or members of multinational enterprises (“MNEs”) with consolidated group revenues exceeding Dh3.15 billion.

Does the ministry mean no taxes will be paid?

Any UAE resident taxable person with revenues below the Dh3 million threshold and that meets certain other conditions, can claim the Small Business Relief by making an election to be treated as not deriving any “taxable income” in the relevant tax period.

In effect, any revenue earned by the UAE resident taxable person below the Dh3 million threshold during the relevant tax period in which the Small Business Relief is claimed would not will not be subject to corporate tax as the revenue will not be considered as "taxable income".

When does then the 9 per cent apply on qualifying businesses that earn Dh375,000 or more, which is less than Dh3 million?

The Small Business Relief is distinct from zero per cent corporate tax rate applicable to "taxable income."

If a taxable person has revenues exceeding the Dh3 million threshold, they will not qualify for the Small Business Relief. Nevertheless, their taxable income up to Dh375,000 will be subject to a zero per cent corporate tax rate, and any taxable income above Dh375,000 will be subject to a 9 per cent corporate tax rate.

On the other hand, if a UAE resident taxable person has revenues of less than the Dh3 million threshold and the UAE resident taxable person qualifies for the Small Business Relief, all of the revenue will not be treated as “taxable income” and therefore, the revenue will not be subject to corporate tax.

What if companies decide not to take advantage of this? Are there advantages for ignoring the relief scheme?

Where the Small Business Relief is claimed for a relevant tax period, the UAE resident taxable person cannot claim certain reliefs or deductions during that tax period. Therefore, for some UAE resident taxable persons who are not profitable after 1 June 2023, it may be more advantageous not to claim the Small Business Relief, if eligible. This allows them to carry forward any tax losses and disallowed net interest expenses from those tax periods for use in future tax periods when the Small Business Relief is not chosen or is no longer available. Therefore, it is important for businesses to carefully assess whether they qualify for the relief and if the relief will be beneficial to them.

Shiraz Khan, Partner and Head of Taxation at Al Tamimi & Company