The introduction of Corporate Tax in the UAE which will take effect starting June 1st, 2023, has many corporations worried about the profitability of their business. Small businesses are especially concerned not just about their profitability but their ability to survive in a competitive market while liable to Corporate Tax.
Therefore, the Ministry of Finance has issued a decision regarding Small Business Relief from Corporate Tax with the purpose of acting as an incentive for Start-ups and small businesses to grow and establish their presence in the UAE.
The decision issued by the MoF was accompanied by certain conditions for a business to be qualified to apply for Small Business Relief. So, in this post we are going to be covering what exactly qualifies as a small business in the UAE as well as the conditions for a Small Business to request exemption from Corporate Tax.
What counts as a Small Business in the UAE?
The Federal Corporate Tax Law defines a business as “Any activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities.” The ever, what indicates a small business in the UAE is the business’s revenue.
To qualify as a small business, the company’s revenue in the relevant tax period as well as the previous one must be no more than 3 million AED per Tax Period. The 3 million AED threshold will continue to apply until December 31st, 2026.
On the other hand, an entity cannot apply for small business relief if it is a Qualifying Free Zone Person or part of a Multinational Enterprise Group. Multinational Enterprises are a group of companies that operate in more than one country and drive more than AED 3.15 billion in revenue.
UAE Small Business Relief from Corporate Tax
In accordance with Article 21 of the Corporate Tax Law, a resident business with revenue less than 3 million AED in a single Tax Period can apply for small business relief. However, if the business’s revenue exceeds 3 million AED, then the Corporate Tax exemption will no longer be applicable.
Additionally, the Ministry of Finance has made it clear that it will not accept artificial separation of a business to qualify for small business relief. As such, fragmentation of a business entity or business activity for the sole purpose of taking advantage of the Ministry’s decision regarding small businesses would be considered a violation of the General anti-abuse rules of the Corporate Tax Law.
Why Choose AM Audit ?
Starting a business can be overwhelming due to the sheer number of tasks required and variables you must consider. In fact, for your business to survive in a competitive market, you must make sure that you are doing everything right from the start. Start your journey to success with AM Audit who supports you with a number of Services including Auditing, Accounting, Consulting, and Corporate Tax Services.
