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What UAE’s new corporate tax relief program means for startups and small businesses
A new corporate tax relief program is available for small businesses in the UAE that have revenue of $816,880 or less.
The UAE has launched a new corporate tax relief program to bolster the growth of startups and small businesses. Under the Small Business Relief initiative, small and micro-enterprises with revenue of $816,880 or less can take advantage of reduced corporate tax obligations and simplified compliance procedures. This initiative aims to empower small businesses, the backbone of the economy, by easing their financial burden and encouraging them to invest in innovation and expansion.
In accordance with Article 21 of the corporate tax law, the UAE Ministry of Finance has announced a new scheme where taxable persons can claim tax relief if their revenue for the relevant and previous tax period is below $816,880 for each period. This provision treats the taxable person as not having derived any taxable income in a given tax period where revenue did not exceed the specified threshold.
However, if a taxable person exceeds the revenue threshold in any tax period, tax relief will no longer be available. The revenue threshold will only apply to tax periods commencing on or after June 1, 2023, and will continue to apply to succeeding tax periods. Revenue determination will be based on the applicable accounting standards accepted in the UAE.
If businesses do not apply for tax relief under the new scheme, they may still carry forward any tax losses and disallowed net interest expenditure incurred in such tax periods for use in future tax periods when the Small Business Relief is not chosen.
However, tax relief is unavailable to qualifying free zone entities or members of multinational enterprise (MNE) groups. MNE groups are groups of companies operating in multiple countries with consolidated group revenues exceeding $857 million.
If taxable persons have artificially separated their business and the total revenue of the entire business exceeds $816,880 in any tax period, and they elect to apply for the scheme, it will be deemed as an arrangement to obtain a corporate tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the corporate tax law.
The UAE corporate tax law exempts certain entities, including those involved in natural resource extraction activities, subject to existing local emirate-level tax. Exemptions are also offered to government entities, pension or investment funds, and public benefit organizations.