UAE – Small Business Relief for Corporate Tax- Conditions – Impact for transfer pricing
Under the UAE Decree Law on Corporate Tax (Article 21- Small Business Relief) issued in December 2022, it was specified that a Taxable Resident Person may elect to be treated as not having derived any Taxable Income for a Tax Period where:
- the Revenue of the Taxable Person for the relevant Tax Period and previous Tax Periods does not exceed a threshold to be prescribed and
- the Taxable Person meets all other conditions prescribed.
Today (06 April 2023), the UAE MoF has issued Ministerial Decision No. 73 of 2023 which prescribes the mentioned threshold and other conditions for availing Small Business Relief. The key aspects are as follows:
- Revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period. Revenue can be determined based on the applicable accounting standards accepted in the UAE
- There is a sunset clause prescribed (3 years)– the revenue threshold will apply to tax periods starting on or after 1 June 2023 and will only continue till 31 December 2026
- Small business relief will not be applicable to Qualifying Free Zone Persons or members of MNE Groups (Groups of companies having operations in more than one country have consolidated Group revenues of > AED 3.15 billion.)
- Restriction on carry forward of losses only in periods where small business relief is elected
- Any artificial segregation of business to meet the thresholds will be viewed as arrangement subject to the General Anti Abuse Rules
IMPACT FOR TRANSFER PRICING
In case a Taxable Person meets the above conditions, various provisions of the Decree Law will not be applicable, including Article 55 which relates to Transfer Pricing documentation requirements. Persons who opt for Small Business Relief will be exempted from:
- The requirement to file a Disclosure form along with the Tax return providing details of transactions with Related Parties and Connected Persons
- Maintenance of Local file and Master file
- There may not be any requests from the Federal Tax authority to furnish information to support the arm’s length nature of transactions with Related Parties and Connected Persons
The above provisions are meant to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs. However it is to be noted that transfer pricing requirements will continue for all members of larger MNE groups which have consolidated group revenue of > AED 3.15 billion and entities operating in Qualifying Free zones.