UAE to offer corporate tax relief to small businesses earning $816,880 or less

Small businesses in the UAE with revenue of Dh3 million ($816,880) or less can benefit from a new corporate tax relief programme, the UAE's Ministry of Finance said on Thursday.

The ministerial decision on Small Business Relief is issued in accordance with Article 21 of the corporate tax law, "which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold", the ministry said in a statement. Last year, the UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent, which will come into effect for businesses whose financial year starts on or after June 1 this year.

In December, the country issued the federal corporate tax law, bringing the income of companies exceeding Dh375,000 ($102,000) into the corporate tax bracket. "Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs," the ministry said.

It specifies the revenue threshold and conditions for a taxable person to be eligible for the programme.

Taxable persons who are resident in the country can claim Small Business Relief when their revenue in the relevant and previous tax periods is below Dh3 million for each period. Once a taxable person exceeds that threshold in any tax period, they will no longer be eligible for the scheme.

The threshold will apply to tax periods starting on or after June 1, 2023 and will continue to apply only to subsequent tax periods that end before or on December 31, 2026.

In tax periods where businesses do not elect to apply for Small Business Relief, they will be able to carry forward any incurred tax losses and any disallowed net interest expenditure for use in future tax periods in which the scheme is not elected, the ministry said. "Revenue can be determined based on the applicable accounting standards accepted in the UAE," it added.

The scheme will not be available to qualifying free zone persons or members of multinational enterprises groups — which refers to companies with operations in more than one country that have consolidated group revenues of more than Dh3.15 billion.

The UAE corporate tax law currently exempts certain entities, including those involved in natural resource extraction activities in the country. However, they are still subject to existing local emirate-level tax.

Other exemptions are available to organisations such as government entities, pension or investment funds and public benefit organisations.

Existing free zone entities are also exempt from corporate tax because they are among the drivers of the UAE's economic growth, the ministry said in December.

In cases where the Federal Tax Authority establishes that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds Dh3 million in any tax period and that such persons have elected to apply for the Small Business Relief scheme, "this would be considered an arrangement to obtain a corporate tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the corporate tax law", the ministry said on Thursday.

The UAE's corporate tax regime is based on a self-assessment principle, which means businesses are required to ensure that the documents submitted to the FTA are correct and comply with the law.