Small Business Relief under UAE Corporate Tax
UAE Corporate Tax will come into effect from Thursday this week. People in large, especially freelancers, sole proprietors, salaried employees and real estate investors are wondering whether they need to register for corporate tax and pay. On 8 May 2023, the Cabinet of Ministers issued Decision No.49 of 2023, which specifies the categories of Businesses or Business Activities conducted by a resident or non-resident natural person that are subject to Corporate Tax.
Resident or non-resident natural persons (individuals) shall only be subject to Corporate Tax where the turnover or gross amount of income derived from Businesses or Business Activities exceeds AED 1,000,000 within a Gregorian Calendar Year. Tax registration is required and tax may not be payable provided you have opted for Small Business Relief, but what is Small Business Relief?
What is Small Business Relief (SBR)?
To encourage investment in the UAE and support small businesses, Article 21 of the CT Law provides for a Small Business Relief mechanism. Under this mechanism, a tax resident person may elect to be treated as not having derived any Taxable Income within a tax period. The Small Business Relief also allows a Taxable Person to benefit from reduced compliance requirements including transfer pricing.
It should be noted that Small Business Relief will not be available to taxable persons deemed to be Qualifying Free Zone Persons as per the CT Law or members of Multinational Enterprises Groups (MNE Groups) that have consolidated group revenues of more than AED 3.15bn (as defined in Cabinet Decision No. 44 of 2020).
Is there a threshold for this?
A taxable UAE resident person (as defined under the CT Law - check out this blog) will be eligible to claim Small Business Relief in the event that its revenue for the relevant and previous tax periods shall not exceed AED 3,000,000 threshold during each relevant tax year. Revenue for the relevant tax year is determined in accordance with accounting standards accepted in the UAE.
Is there a Sunset Clause?
According to the Ministerial Decision released, the applicability of the revenue threshold will start on or after 1 June 2023. However, it will only apply to subsequent tax periods that end before or on 31 December 2026. Carrying forward Tax Losses and any disallowed Net Interest Expenditure will only be allowed in tax periods where the Small Business Relief is not elected.
When applying for Small Business Relief, taxable persons should keep into consideration "General Anti Abuse Rule" as mentioned under the CT Law. As such, in the event a taxable person intentionally separates its business solely to meet the threshold of AED 3,000,000 and hence elects not to be subject to UAE CT, the Federal Tax Authority can make compensating adjustments to the UAE CT liability of the relevant taxable person.
So, what's next? The Small Business Relief offers reduced tax costs and compliance requirements, benefiting start-ups and small enterprises. However, one should seek experts opinions before making a decision.
To find out whether you qualify for Small Business Relief, feel free to contact us, or explore our Corporate Tax services to find out more about the law and our unique, value-add approach to help you stay compliant
