U.A.E Ministry of Finance issue decision on small business relief on Corporate Tax

The Ministry of Finance (MoF) has issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law).

The decision is issued in accordance with Article 21 of the Corporate Tax Law, which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold.

Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. The Ministerial Decision on Small Business Relief 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.

The Ministerial Decision on Small Business Relief stipulates the following:

1. Taxable persons that are resident persons can claim Small Business Relief where their revenue in the relevant tax period and previous tax periods is below AED3 million for each tax period. This means that once a taxable person exceeds the AED3 million revenue threshold in any tax period, then the Small Business Relief will no longer be available.

2. The AED3 million 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.

3. Revenue can be determined based on the applicable accounting standards accepted in the UAE.

4. 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 No. 44 of 2020 on Organizing 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.

5. 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.

6. With regard to the artificial separation of business, the Ministerial Decision 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.

All Cabinet Decisions and Ministerial Decisions issued relating to the Corporate Tax Law are available on the Ministry of Finance's website: www.mof.gov.ae

U.A.E Ministry sets minimum turnover requirement for VAT registration

Those that offer services or sell goods that are non-taxable will also not need to get bothered by the extensive paperwork and reporting that the new tax system will require.The Ministry of Finance issued an announcement on Tuesday that effectively sets Dh375,000 as the minimum annual turnover requirement for companies that are required to register for value-added tax (VAT) which will be implemented in the UAE on January 1st, 2018.

Businesses in the UAE that barely make money every year - be they a streetside eatery, a shawarma vendor or a barber shop - may not need to go through the tedious process of registering for the value-added tax.

“Businesses with taxable suppliers over Dh375,000 will be required to register for VAT,” the announcement on Twitter reads. Those with net sales “below Dh375,000 but over Dh187,500,” will have the option to register starting October this year.There were no further details issued regarding the new policy, but one tax expert said that small businesses who may opt out of tax registration don’t have to charge VAT to their customers.

“The ministry has announced that those with revenue below 375K but over 187K will have an option to register. Which means that they may if they like, register under VAT. But if they don't then they do not have to collect VAT from their customers,” said Rakesh Pardasani, partner at audit and tax advisory firm RSM.

The ministry had earlier said that not all businesses, especially small companies, will need to register for the new tax policy. “In simple terms, only businesses that meet a certain minimum annual turnover requirement will have to register for VAT,” it said.

“We have made this decision to safeguard small businesses from the extensive documentation and reporting that a system like VAT requires.”

Pardasani, however, said that the revenue requirement set by the Ministry of Finance would mean that many small business owners will still be obliged to collect VAT.

“This number, however, if it is an annual number, appears to be very small and it may bring a lot of small businesses within the scope of VAT.”

He also pointed out that companies who make less turnover are still given an option to register for the new tax system. “Some may prefer [to register even if they are exempt] because if they don’t, they may not be able to claim back the VAT paid on their purchases.”

Starting next year, a 5 per cent levy will be charged on all supplies of goods and services, unless specifically exempted or zero-rated, in the UAE.  The levy will be implemented across the Gulf Cooperation Council (GCC) region, with some states given an option to join in on January 1st, 2019.

The ministry had earlier announced the start of its country-wide awareness campaign to educate various stakeholders on the collection of VAT. A VAT law has yet to be enacted, but the Federal National Council on Wednesday passed a draft legislation, the Tax Procedure Bill, that will pave the way for the collection of taxes.

Several briefings for entrepreneurs – from small and medium-sized enterprises (SMEs) to huge multinational organisations – will be held on different dates between April and May this year.

The sessions will explain to companies the rules of the new VAT system and cover the general application of the new VAT rules.

UAE Finance Ministry expects approval of federal debt law this year

Younis Al Khouri, the undersecretary at the Ministry of Finance, speaks during a news conference announcing the release of the statistical report on the Gulf Common Market at the Ministry of Finance in Abu Dhabi on August 2, 2016. Christopher Pike / The National

The UAE finance ministry expects this year the approval of a federal debt law that will allow the government to sell bonds on a federal level, a ministry official said.

The ministry has been working on the federal debt law for years. Currently, individual emirates, mainly Abu Dhabi and Dubai, have tapped the international bond markets.

"We have one clause outstanding, which is the debt ceiling and the servicing of the debt," said Younis Al Khouri, the undersecretary at the Ministry of Finance. "Once we agree with the central bank then we will go to the council of ministers for approval and after that is the FNC (Federal National Council) approval.

The UAE could raise between Dh80 billion and Dh100bn via a bond sale, Mr Al Khouri said in February.

Debt issuance in the UAE is expected to accelerate as the country seeks to finance a fiscal deficit, which reached 2.1 per cent of GDP last year, according to IMF estimates.

In April, Abu Dhabi raised US$5bn from the international debt markets, its first bond sale since 2009.

The IMF has called on the UAE to tap the bond markets and the assets of its sovereign wealth funds rather than draw down its local bank deposits to balance its budget.

The IMF is forecasting that the UAE’s cumulative fiscal deficit will reach $18.4bn between this year and 2021 as low oil prices reduce government income.

As a result of expected higher debt issuance, the country’s gross public debt to GDP ratio is forecast to rise to 17 per cent next year from 16.6 per cent at the end of last year, the fund said. The debt-to-GDP ratio averaged 18.5 per cent between 2005 and 2013.

Ministry of Finance withhold July salaries of employees with incomplete Emirates ID details

 Pursuant to Circular No. 03 for 2016, issued on 3rd April, 2016, regarding the uploading of employee Emirates ID numbers in the Federal Financial System, an essential reference for all financial transactions and procedures at the national level, the Ministry of Finance, MoF, has announced that it will begin implementation of the circular, and will withhold July salaries of employees with incomplete or inaccurate national ID details.

The Ministry of Finance urged ministries and federal entities to ensure the completion of uploading the Emirates ID number, from the issuance date of the circular.

The Emirate ID number is an essential reference to speed up all government transactions for all federal government employees.

Mariam Mohammed Al Amiri, Assistant Under-Secretary for the Management of Financial Resources, stressed the need for all ministries and federal entities to ensure the completion of uploading the required data in the system. Having the correct data for all government employees in ministries and federal entities will facilitate transactions, and follow up on their requests in a fast and accurate manner.

Al Amiri also highlighted the link between the Emirate ID number and a number of significant federal government projects.

The Ministry had previously announced that all ministries and federal entities linked to the federal financial system must enter or correct the Emirates ID numbers for all of their employees, and those that adopt their own financial systems must complete the national ID details.