The United Arab Emirates (UAE) Ministry of Finance (MoF) has recently issued a new Ministerial Decision, №73 of 2023, on Small Business Relief. This decision is aimed at supporting startups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs, in accordance with Article 21 of the Corporate Tax Law. The decision specifies the revenue threshold and conditions for a taxable person to elect for Small Business Relief and clarifies the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief scheme.
Under the new Ministerial Decision on Small Business Relief, taxable persons who are resident persons can claim Small Business Relief where their revenue in the relevant and previous tax periods is below AED3 million for each tax period. Once a taxable person exceeds the AED3 million revenue threshold in any tax period, the Small Business Relief will no longer be available. This revenue threshold will 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.
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Revenue can be determined based on the applicable accounting standards accepted in the UAE. However, Small Business Relief will not be available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups) as defined in Cabinet Decision №44 of 2020 on Organising Reports Submitted by Multinational Companies. MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion.
In tax periods defined in the decision where businesses do not elect to apply for Small Business Relief, they will be able to carry forward any incurred Tax Losses and any disallowed Net Interest Expenditure from such tax periods, for use in future tax periods in which the Small Business Relief is not elected.
The Ministerial Decision also addresses the issue of the artificial separation of business. It specifies that 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 AED3 million 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 Corporate Tax Law.
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This decision is expected to benefit startups and other small or micro businesses looking to establish a headquarters abroad, especially those from Africa. By reducing their Corporate Tax burden and compliance costs, the UAE is positioning itself as an attractive destination for foreign investment and entrepreneurship. However, it is important to note that this relief is not available to all businesses and only applies for a limited period, so interested parties should carefully consider their eligibility before making any decisions.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard