Ministry of Finance issues a ministerial decision to reduce tax burdens on small businesses

The Ministry of Finance issued Ministerial Resolution No. (73) of 2023 regarding small business facilities for the purposes of Federal Decree-Law No. (47) of 2022 regarding the Corporate and Business Tax (Corporate Tax Law).

The Ministerial Decision on "Small Business Facilities" defines the mechanism for applying the provisions contained in Article (21) of the Corporate Tax Law, which stipulates that a Taxable Person shall be treated as a Person who has not achieved any Taxable Income during the specified Tax Period during which his revenues did not exceed a certain limit.

The "Small Business Facility" aims to support startups and other small or micro businesses by reducing the burden of corporate tax and compliance costs. The Ministerial Decision on Small Business Facilities sets out the revenue limit and conditions that a taxable person must meet to choose to benefit from small business facilities, as well as clarifies the provisions for the carry-over of tax losses and non-deductible net interest expenses for the purposes of benefiting from small business facilities.

The Ministerial Decision on Small Business Facilities stipulates the following:

1. Resident Persons Subject to Corporate Tax can claim a small business facility if their revenues for the relevant tax period and previous tax periods do not exceed AED 3 million for each tax period, therefore, where the taxable person's income exceeds the AED 3 million limit in any tax period, the small business facility will not be available.

2.The AED 3 million limit applies to tax periods commencing on or after 1 June 2023 and the same revenue limit continues to apply only to subsequent tax periods ending before or on 31 December 2026.

3. "Small Business Facilities" will not be available to qualified persons based in the free zone or member companies of multinational groups of companies defined in Cabinet Resolution No. (44) of 2020 regarding the regulation of reports submitted by multinational companies as companies doing business in more than one country and their total consolidated revenues as a group are more than AED 3.15 billion.

4.Revenues can be determined based on applicable and accepted accounting standards in the United Arab Emirates.

5.Businesses that have not opted to benefit from the small business facility during the tax periods specified in the resolution will be able to carry forward their tax losses incurred and any net interest expenses that are not deductible from these tax periods for use in subsequent tax periods in which the application of the small business facility is not selected.

6. With regard to the fictitious business separation, the Ministerial Resolution stipulates that if it is proven to the Authority that persons have separated their business or business activity in a fictitious manner and that the revenues of the entire business or business activity exceed the limit of AED 3 million in any tax period, and the application of small business facilities has been chosen, this shall be considered an arrangement to obtain a benefit related to corporate tax in accordance with item (1) of Article (50) on the general rules for combating abuse of the Corporate Tax Law.

All Cabinet decisions and ministerial decisions related to corporate tax can be viewed through the website of the Ministry of Finance: www.mof.gov.ae.