Art. 21 of the CTL introduced a Small Business Relief Regime (SBRR) allowing resident taxable person to elect to be treated as not having derived any taxable income subject to certain conditions.
On 3 April 2023 Ministerial Decision No. 73 of 2023 on SBRR has been published stating revenue threshold and other conditions to be met in order to be eligible of the SBRR.
Who is eligible for the Small Business Relief Regime?
Three million Dirhams revenues threshold
Taxable persons that are resident persons can claim SBRR where their revenue in the relevant tax period and previous tax periods is below three 3 million AED for each tax period
Revenue can be determined based on the applicable accounting standards accepted in the UAE (for instance IFRS).
Not a Qualifying Free Zone Person
A Qualifying Free Zone Person as per Art. 18 of CTL is not eligible for the Small Business Relief.
Not a member of a big Multinational Enterprises Group
Members of big multinational group as defined in Cabinet resolution 44 of 2020 (consolidated group revenue exceeding three billion Dirhams) are not eligible for the SBRR even inf the UAE business units have revenues below the three million thresholds.
Is the Small Business Relief a temporary regime?
Art. 21 of CTL doesn’t clearly mention that the SBRR is applicable for a limited period of time, however Ministerial Decision No. 73 of 2023 states that the AED 3 million revenue threshold shall apply to tax periods starting on or after 1st June 2023 and will only continue to apply to subsequent tax periods that end before or on 31st December 2026.
At current date, therefore, is not clear whether or not the SBRR will be extended after 31st December 2026, maybe with a different revenue threshold to be fixed by another Ministerial Decision.
Anti-abuse rules
Where the Federal Tax Authority (FTA) establishes that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds three million AED in any tax period and such persons have elected to apply for Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the CTL.
Free Zones still waiting for the complete legal framework
At current date the Cabinet Decision regulating Qualifying Income of Qualifying Free Zone has not been published yet, hence it is still not possible to assess whether or not companies established in a Free Zone with turnover below three million dirhams will be eligible for the small business relief.
As per Art. 21 of CTL a “Qualifying Free Zone Person” is required to maintain “adequate substance in the State”. Assessing whether or not the substance is “adequate” is always a subjective assessment and would be helpful if FTA would provide further guidance on this matter.
Conclusion
Mainland companies have now a clear understanding of the overall tax burden triggered by the new UAE corporation tax.
- No tax area for taxable profit up to 375.000 AED
- 9% corporation tax calculated on profit exceeding 375.000 AED
- Three years of no taxation for companies with yearly turnover below 3 million AED (not member of big multinational)
For Free Zone companies instead, we are still waiting for the publication of the cabinet decision regulating the “Qualifying Income” in order to understand the actual impact of the new corporation tax.
Dubai, 11th April 2023
Stefano Menotti
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