MoF Issues Corporate Tax Guide on Small Business Relief
10 Oct, 2023 / Haroon Juma / Corporate Tax
Further to Ministerial Decision No. 73 of 2023 on Small Business Relief and in accordance with Article 21 of the Corporate Tax Law, The Ministry of Finance (MoF) has issued further updates and extensive guide on the Small Business Relief Scheme.
The Guide provides further updates and specific reliefs to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs.
The Decision details material aspects on the qualification, conditions, obligations and compliance. It sets out material aspects including the revenue threshold, conditions to elect for small business relief (including Free Zones), provisions of the carried-forward tax losses, and disallowed net interest expenditure under small business relief have been stipulated.
In this blog, we provide further clarity on how the Scheme could benefit you.
What are the conditions to be met?
In accordance with the Ministerial Decision, the following criteria must be satisfied to be eligible:
1. A taxable person must be a resident.
2. The revenue in the current and previous tax periods is below AED 3 million for each tax period.
3. The revenue threshold will apply starting June 1, 2023, through December 31, 2026.
4. Qualifying Free Zone Persons or members of Multinational Enterprises Group (MNE Group) will not be eligible for the relief.
In summary, a taxable resident person must incur a turnover of less than AED 3 million from the previous and current tax years with revenue determined on the applicable accounting standards accepted in the UAE. This means if revenue has been breached in any tax period, the relief will no longer apply.
Therefore, a Free Zone entity electing to join the normal scheme with standard rate of CIT of 9%, is eligible to apply for Small Business Relief (subject to the Scheme conditions). Of important note is the Free Zone entity, once elected to the standard scheme, becomes ineligible to apply for the Free Zone Exemption to attain status as a Qualifying Free Zone Person (QFZP).
To assure compliance, The Federal Tax Authority (FTA) may request any relevant information or records from the Taxable Person within the timelines to be prescribed.
It should be noted that the Small Business Relief Scheme is set with a “Sunset Clause” and eligible for tax period June 1, 2023, through December 31, 2026. Subsequently the taxable person will fall into the standard 9% corporate income tax scheme.
What relief does the Scheme provide?
Upon the election to the Scheme and upon fulfillment of the conditions, a Taxable Person shall be treated as not having derived any Taxable Income for the Tax Period. Therefore, no tax payment will be required. The Scheme still obliges all companies to comply to maintaining their books and obligations under the Tax Procedures Law.
Is there an automatic enrolment to the Scheme?
The Taxable person eligible for Relief would need to elect for the Relief and comply with all other prescribed conditions including Free Zone Persons.
Do companies still need to register for the corporate tax if they are eligible?
All entities subject to Corporate Tax are required to register regardless of if they meet the Small Business Relief conditions or not.
Who are ineligible for the Scheme?
The scheme is ineligible for: · A Qualifying Free Zone Person (subject to the Exemption Rules) ; and
- A Constituent Company of a Multinational Enterprises Group (MNE Groups) as defined in Cabinet Decision No. 44 of 2020. (MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED 3.15 Billion.
Considerations Of Electing The Scheme
Taxable Persons should consider the benefits of joining the Scheme in the light of the following restrictions:
- Any Tax Losses incurred in such Tax Periods cannot be carried forward to any subsequent Tax Periods.
- Any unutilized Tax Losses incurred in previous Tax Periods where an election to apply the Small Business Relief was not made, may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made.
2. Net Interest Expenditure
- Any Net Interest Expenditure incurred in such Tax Period cannot be carried forward to any subsequent Tax Periods.
- Any Net Interest Expenditure incurred in previous Tax Periods where an election to apply the Small Business Relief was not made may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made.
3. Other Matters
- A Taxable person is not entitled to claim the benefit of deductions under Chapter Nine and enjoy reliefs under Chapter Eight of the Corporate Tax Law.
- Similarly, the Taxable person shall not be able to enjoy exemptions for the calculation of taxable income as contained in Chapter Seven of the Corporate Tax Law.
- The Taxable person is not required to file Transfer Pricing Documentation for transactions with its Related Parties and Connected Persons.
It was indicated under the Ministerial Decision and Guide that if the FTA observed that the taxable person had artificially separated its business to apply for the Relief and that the consolidated revenue of the company exceeded the AED 3 million threshold, this would be considered an arrangement to take advantage of the Corporate Tax under the General Anti-Abuse Rules (GAAR) of the Corporate Tax Law (Clause 1 of Article 50). The FTA may determine that any such corporate tax advantage obtained is to be counteracted or adjusted.
SimplySolved is an approved Federal Tax Agency operating to ISO 9001 & 27001 certification standards. We operate as a quality-driven full spectrum services partner to UAE businesses providing advisory, outsourcing, and project services to improve compliance and business performance across Accounting, Finance, Corporate Tax, Employee Management & Payroll, or ERP & E-Commerce Integration.
If your business is seeking assistance to assess and implement efficient and compliant policies, our consultants provide clear and effective support to ensure your Tax model is optimized to minimize risks and costs.
Partner With SimplySolved
Serving over 300+ clients we know the challenges your business faces operating cost effective, compliant and efficient back office operations.
As an FTA Accredited Tax Agency with ISO 9001 Quality & 27001 Information Management Certification, we offer a quality-based approach to our services supported by dedicated team of certified professionals.
We support our clients with defined processes, platforms and expertise to deliver advisory, project and outsourced services in Accounting, Tax, Auditing, HRM & Payroll & ERP solutions. Our offerings are specially designed to meet the UAE Regulations to put you in control of your information, comply to the legislation and help you make better business decisions.