The UAE Ministry of Finance announced corporate tax relief for small and micro businesses in early April 2023 pursuant to Ministerial Decision No. 73 of 2023 (Ministerial Decision). The Ministerial Decision will come into effect from 1 June 2023.
The Ministerial Decision provides further clarity on the provisions of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law), which is also due to come into effect from 1 June 2023.
Corporate tax rates under the Corporate Tax Law
The Corporate Tax Law will apply to both onshore and free zone companies. Corporate tax rates will be 0% on taxable income up to AED 375,000 and 9% on taxable income over AED 375,000.
Free zone entities that maintain adequate substance in the UAE and comply with transfer pricing rules (and document such compliance) and do not select to be subject to full corporate tax rates will be subject to corporate rates of 0% on ”Qualifying Income” and 9% on other taxable income. None of the Corporate Tax Law, the implementing regulations or the Ministerial Decision clarifies how qualifying income will be calculated. Accordingly, we are still awaiting further clarity on what will be considered Qualifying Income.
Purpose of small business tax relief
The aim behind small business relief is to support small businesses that provide goods and services and operate within the UAE. Reducing the corporate tax imposed on small businesses that qualify for the relief, and in turn reducing the costs associated with compliance with the new laws, will allow such businesses to continue to thrive.