Article (21) of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, titled "Small Business Relief," lets a Taxable Person that is a Resident Person elect to be treated as not having derived any Taxable Income for a Tax Period, provided its revenue does not exceed a threshold set by the Minister of Finance, and it meets any other conditions the Minister sets.
Two Conditions for Relief
Under Clause (1) of Article (21), applying this relief requires both of the following to be met:
- The Taxable Person's revenue for the relevant Tax Period and previous Tax Periods must not exceed the threshold set by the Minister.
- The Taxable Person must meet all other conditions set by the Minister.
Note that the Law itself does not state a specific figure for the revenue threshold; it leaves that to a separate Ministerial Decision issued by the Minister of Finance. This means any figure circulating about this threshold must be verified against the official text of that specific Ministerial Decision, not against the Corporate Tax Law itself.
What the Election Means in Practice
If a Taxable Person elects to apply this relief, it is treated as having derived no Taxable Income for that period, so the usual 0% and 9% rate schedule does not apply to it. This election comes at a cost, however: Article (21) provides that where it applies, the following provisions of the Corporate Tax Law no longer apply to the Taxable Person:
- The Exempt Income provisions set out in Chapter Seven of the Law.
- The reliefs set out in Chapter Eight of the Law.
- The deductions set out in Chapter Nine of the Law.
- The Tax Loss relief set out in Chapter Eleven of the Law.
- The provisions of Article (55) of the Law.
The Authority's Power to Verify Compliance
The Federal Tax Authority may take the necessary measures to verify a Taxable Person's compliance with the conditions for this relief, and it may request any relevant information or records from the Taxable Person within a period it specifies. Any Taxable Person considering this election is advised to keep accurate revenue records from the start of its activity, so it can demonstrate that it meets the revenue threshold condition if asked.
Weighing Relief Against the Normal 0%/9% Schedule
Because the normal Corporate Tax schedule already taxes the portion of income up to AED 375,000 at 0%, and imposes 9% only on the excess, the real value of electing Small Business Relief lies mainly in simplifying the accounting and filing burden for very small businesses, not necessarily in an additional tax saving on income that would already have been taxed at 0%. Every Taxable Person should therefore weigh the cost of giving up deductions and other reliefs before electing this regime instead of applying the normal 0% and 9% schedule.
Illustrative Example
Suppose a Taxable Person elects to apply Small Business Relief and meets the revenue threshold set by the Minister for a given Tax Period. That Taxable Person is then treated as having derived no Taxable Income for that specific period, but in exchange it gives up its right to apply the Exempt Income provisions, deductions and Tax Loss carry-forward relief for that same period, even if its income would otherwise have been taxed at 0% under the normal schedule.
Legal References
- Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses — Article (21).
- Cabinet Decision No. (116) of 2022 on Determining the Annual Income Subject to Corporate Tax — Articles (2) and (3).
For questions about your specific situation, you can ask the UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.