UAE Announces Small Business Relief Criteria for Corporate Tax Law
The UAE implemented its Corporate Tax Law in December 2022, which came into effect on June 1, 2023. The law allows small businesses that meet certain criteria to be treated as having no taxable income for a specific period, meaning they would pay zero corporation tax during that time. This is known as the Small Business Relief.
The Ministry of Finance recently published the criteria for small businesses to claim Small Business Relief. To qualify, a Resident Person must earn revenues in the UAE below AED 3 million (approximately US$816k) and meet specific conditions, such as being a managed and controlled test or an incorporation test.
The Small Business Relief only applies to Resident Persons, which is defined broadly and includes various anti-abuse rules. However, the legislation prohibits a Resident Person who claims Small Business Relief from claiming other reliefs and deductions in the same tax period. In addition, a Constituent Company of a Multinational Enterprises Group with a consolidated revenue exceeding AED 3.15 billion and a Qualifying Free Zone Person are excluded from making a Small Business Relief election.
Any Taxable Person making a Small Business Relief election will still be required to register for and file corporate tax returns. While it is reasonable to assume that the election will be made as part of the annual corporate tax return filing process, the procedure for making the election has yet to be confirmed.
In any tax period in which Small Business Relief is claimed, any tax losses and Net Interest Expenditure cannot be carried forward to subsequent tax periods. Additionally, the FTA has the power to counteract a corporate tax advantage if it determines that a Person has artificially separated its business or business activity to fall under the revenue threshold.
While relief for small businesses is a common feature of corporate tax regimes in other jurisdictions, the Small Business Relief in the UAE is comparatively generous as it provides a complete exemption from corporate tax rather than a reduced rate. It is not sector or industry specific, and it does not require a minimum number of employees.
The current criteria for Small Business Relief will only apply to any tax periods that end before or on December 31, 2026. Another Ministerial Decision will need to be issued in respect of tax periods after this date. It will be interesting to see how the Ministry of Finance adapts the Criteria, and whether it replaces the Criteria with a scheme of reduced rates for lower revenue businesses.
The Small Business Relief criteria for the UAE Corporate Tax Law are now available for small businesses that meet specific requirements to qualify for zero corporation tax for a specific period. While the relief is generous, the FTA has the power to counteract any advantage under the Corporate Tax Law anti-abuse rules, so businesses should ensure that they meet all the criteria and keep proper records.