Small businesses in the UAE with income up to 3 million Dirhams can opt for corporate tax relief. The Ministry of Finance has released a Ministerial Decision No. 73 of 2023 on Small Business Relief for Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses also called the “Corporate Tax Law”.
Once a taxable person exceeds the revenue threshold of 3 million during a tax period they will be exempt from this concession.
This decision is in accordance with the stipulated Article 21 of the corporate tax laws which treats the taxable person as not having earned any taxable income during the given tax period where the earning has not exceeded a certain threshold.
This scheme was introduced with the good intention of helping start-ups and small businesses by decreasing their corporate tax burden and compliance cost.
It was last year that the UAE government introduced the federal corporate tax with a standard statutory tax rate of 9 % which is supposed to come into effect for endeavors whose financial year starts on or after the 1st of June of this year.
The conditions for a taxable person to opt for the Small business reliefs
The taxable people who all are resident persons can claim for small business relief when their total income in the current and previous tax periods is below 3 million Dirhams. Once a person exceeds the threshold they no longer will be eligible for the Small Business Relief.
This 3 million threshold is only applicable starting from the tax period starting on or after June 1, 2023, and it will only last until the subsequent tax periods that end before or on December 31st, 2026.
However, small business relief will not be available to persons qualifying for the free zone or the members of multinational Enterprise Groups; which refers to companies and enterprises with operations and branches in more than one country and that have consolidated revenue of more than 3.15 billion.
Revenue is to be estimated based on the applicable accounting standards accepted in the UAE. In the tax periods defined in the decision where companies do not elect to for the insurance scheme, they will be able to proceed with any incurred Tax Losses and any dismissed Net Interest Expenditure from such tax periods, for use in the future tax periods in which the Small Business Relief is not elected.
The Ministerial decision is when the Federal Tax Authority (FTA) establishes and confirms that the taxable person has artificially separated their business or business activities and the total revenue of the entire business exceeds 3 million Dirham and if such people have decided to opt for the Small Business Relief then this would be counted as a method to get a corporate tax advantage under clause(1) of Article 50 implying the general anti-abuse rules of the corporate tax laws.
The Federal Tax Authority will make sure whether the arrangement made by the business was for well-founded reasons; whether the claimer managed any business similar provided the facts and circumstances; and whether the financial, organizational, and economic links, etc. of the person or business, to make sure the business is officially separated.
Few Aspects of Corporate Tax
The Major features of this Corporate Tax Law were already shared by the Ministry of Finance (MoF) in the year 2022 itself. The tax rate will be set to 9% on the taxable profits. will surely not be a matter of concern for the residents with employment, it’s only for people who do business. But the term business has innumerable explanations and implications.
If any activity is conducted on an ongoing and independent basis means business – then social media influencers and freelancers fit in this category and can be taxed too!!. The cabinet’s decision will explain the taxable business categories for an individual. An individual’s income from a real estate investment within a personal capacity is generally not taxable.
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Taxpayers are supposed to create and maintain financial statements along with all the necessary documents and records to substantiate the Corporate tax returns.
However, all companies may not be required to keep ready audited records The cabinet decision will state the categories of the taxable person required to maintain audited or certified financial statements.
Every Cabinet Decision and Ministerial decision issued pertaining to the Corporate Tax Law is accessible on the Ministry of Finance’s website: www.mof.gov.ae.