Ministry of Finance publishes Ministerial Decision on Small Business Relief

On 3 April 2023, the Ministry of Finance issued Ministerial Decision No. (73) of 2023 on Small Business Relief for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Ministerial Decision).

Under the Corporate Income Tax (CIT) law, a taxable person that is a resident may be eligible for Small Business Relief, subject to meeting condition prescribed by the Minster. These conditions have now been specified by the Ministerial Decision.

What is Small Business Relief?

Small Business Relief is intended to provide tax relief to small businesses by reducing their overall tax burden and compliance costs.

Resident taxpayers that opt for Small Business Relief, will be treated as not having derived any Taxable Income within a tax period. In addition, they will be able to benefit from reduced compliance requirements. For example, taxpayers that are eligible for Small Business Relief are not required to maintain transfer pricing documentation (disclosure form, master file and local file).

It should be noted that taxpayers that opt for Small Business Relief will still be required to register for CIT purposes and file periodic (nil) tax returns.

Which businesses are eligible to claim Small Business Relief?

Only Taxable Persons that are Residents are eligible for Small Business Relief, provided their revenue does not exceed AED 3 million for the current and previous tax periods. We understand that eligible businesses cannot exceed the threshold for any financial years between 1 June 2023 and 31 December 2026.

Small Business Relief will not be available for:

• Constituent Entities of Multinational Enterprises Groups (MNE Groups) with a total consolidated group revenues of more than AED3.15 billion; and
• Qualifying Free Zone Persons.

It seems logical to exclude MNE Groups from Small Business Relief, as any domestic tax incentives granted by the UAE to entities that will be in scope of the Global Minimum Tax under Pillar Two, would generally result in additional taxes becoming payable in other jurisdictions under the GloBe Rules.

For which tax periods can Small Business Relief be claimed?

Small Business Relief will be available for tax periods starting on or after 1 June 2023 and ending on or before 31 December 2026.

Given the importance of SMEs and start-ups to the UAE economy, it is in our view not unlikely that Small Business Relief will continue to exist for tax periods after 31 December 2026. From a tax policy perspective, it is however possible that the UAE would revise the revenue threshold (either upwards or downwards) for such tax periods, after having carefully evaluated and monitored the effect of the current threshold. It is of course also possible that the Small Business Relief facility will be abolished as from 1 January 2027.

Anti-abuse rules

If the Federal Tax Authority determines that a business has artificially separated its business activities to benefit from the Small Business Relief, this would be considered an arrangement to obtain a corporate tax advantage, subject to the general anti-abuse rule included in the CIT law.

Key takeaway

Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their overall tax burden and compliance costs. Resident taxpayers should consider whether they are eligible for Small Business Relief. It is important to note that Small Business Relief does not apply automatically. Eligible businesses will instead be required to register and elect for Small Business Relief with the Federal Tax Authority.