UAE to offer corporate tax relief to small businesses

The UAE Ministry of Finance has issued a new ministerial decision on Small Business Relief, allowing small businesses with revenues of $816,880 (Dhs3m) or less to claim tax relief in a tax period when their revenue does not exceed a certain threshold.

Small Business Relief seeks to support startups and other small or micro businesses by reducing their corporate tax burden and compliance costs. It was 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 the new scheme stipulates that taxable persons who are residents of the UAE can claim Small Business Relief when their revenue in the relevant and previous tax periods is below Dhs3m for each period. Once a taxable person exceeds the revenue threshold in any tax period, then the tax relief will no longer be available, said the Ministry of Finance.

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The revenue threshold will apply to tax periods starting on or after June 1, 2023, and will only continue to apply to subsequent tax periods that end before or on December 31, 2026. The authorities highlighted that small businesses’ revenue will be determined based on the applicable accounting standards accepted in the country.

Read: UAE issues corporate tax law

The new corporate tax will not apply to qualifying free zone entities or multinational companies as defined in Cabinet Decision No. 44 of 2020. The UAE defines multinational companies as businesses with operations in more than one country and has consolidated group revenues of more than D3.15bn.

“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 in a statement.

SMEs support UAE GDP

In other news, the Ministry of Economy said the number of small and medium-sized enterprises (SMEs) operating in the country totalled 557,000 at end of 2022, affirming the UAE’s ambitious plan to drive this number to one million by the end of 2030.

“SMEs account for 63.5 per cent of non-oil GDP,” Abdullah bin Touq Al Marri, UAE Minister of Economy said adding that the ministry’s role in creating an investment environment that supports small businesses is in line with the country’s vision to establish a globally competitive knowledge-based economy led by citizens.

Corporate tax in the UAE

Meanwhile, the UAE announced that it will impose a federal levy on corporate earnings for the first time in June 2023, dismantling a tax-free regime that’s made it a magnet for global business.

The country also issued the federal corporate tax law, bringing the income of companies exceeding Dhs375,000 into the corporate tax bracket in December 2022.

The introduction of corporate tax law in the UAE is part of the country’s broad strategies that are aimed at aligning the country with new international standards, particularly the move toward a global minimum tax on multinational corporations endorsed by the G20 countries in 2021.

However, Moody’s said in February 2022 that the UAE’s corporate tax will broaden the government’s income base but it negatively affects the credit profiles of companies operating in the Middle East business hub.

The UAE will levy the corporate tax on all businesses and commercial activities in the country, except for the “extraction of natural resources” which will remain subject to taxation at the emirate level.

The country has implemented several structural reforms including the implementation of a 5 per cent value-added tax in 2018 and later imposed a 5 per cent customs duty on imports.

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