Corporate Tax Relief for Small Businesses and Startups Announced in UAE

Great news for small businesses, startups, and freelancers in the UAE! The Ministry of Finance has introduced the Small Business Relief initiative, which will decrease their corporate tax expenses and make it easier to follow tax regulations, starting on June 1, 2023. This program is designed for businesses and individuals with revenues of Dh3 million or less, including small businesses and startups, to support and encourage their growth.

The Dh3 million revenue threshold specified by the Ministry of Finance for the Small Business Relief initiative will only apply to tax periods starting on or after June 1, 2023. This threshold will continue to apply to subsequent tax periods that end before or on December 31, 2026. After this date, the Ministry may choose to review and adjust the threshold as needed. It’s important for small and micro businesses, startups, and freelancers in the UAE to keep this in mind as they plan for their tax obligations in the coming years.

To be eligible for the Small Business Relief initiative, taxable persons that are resident persons must have revenue below Dh3 million for each tax period. This includes the relevant tax period as well as previous tax periods. If the revenue is below this threshold, then they can claim the relief. It’s important for these businesses and individuals to keep accurate records of their revenue to ensure they are eligible for this initiative and to avoid any potential issues with the tax authorities.

The Ministry of Finance has clarified that businesses that do not elect to apply for Small Business Relief in a given tax period will still be able to carry forward any incurred tax losses and any disallowed net interest expenditure from that tax period. These losses and expenditures can be used in future tax periods. This is an important feature of the tax system as it allows businesses to offset any losses incurred in one period against future profits, which can help to reduce their overall tax burden. It’s important for businesses to keep track of these losses and expenditures to ensure that they can take advantage of this feature of the tax system.

The Ministry of Finance has stated that if taxable persons have artificially separated their business or activity in order to qualify for Small Business Relief, and their total revenue exceeds Dh3 million in any tax period, then this will be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 of the Corporate Tax Law. This is in line with the general anti-abuse rules of the Corporate Tax Law, which aim to prevent businesses from engaging in artificial arrangements or transactions solely for the purpose of obtaining tax advantages. Therefore, it’s important for businesses to ensure that they are not engaging in any artificial arrangements or transactions that could be viewed as tax avoidance.

The Ministry clarified that the Small Business Relief initiative will not be extended to qualifying free zone persons or members of Multinational Enterprise Groups with operations in multiple countries and consolidated group revenues exceeding Dh3.15 billion.

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