[World Tax News] UAE provides Relief to Start-ups & Small Businesses from Upcoming Corporate Tax Law and more

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UAE provides relief to Start-ups and small businesses from upcoming Corporate Tax Law

The Ministry of Finance, UAE, has issued the Ministerial Decision no. 73 of 2023 on small business relief for the purpose of Corporate Tax Law that will take effect for tax periods beginning on or after 01-06-2023. The relief intends to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs.

The relief provides that a taxpayer may elect to be treated as not having derived any taxable income for a tax period if their revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period, subject to certain conditions.

In other words, taxpayers with revenue below the AED 3 million thresholds may be exempted from tax.

This revenue threshold will apply to tax periods starting on or after 01-06-2023 and will only continue to apply to subsequent tax periods that end before or on 31-12-2026. The revenue shall be determined based on the applicable accounting standards accepted in the UAE.

Further, the 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 Organising Reports submitted by Multinational Companies. MNE groups are groups of companies with operations in more than one country that have consolidated group revenue of more than AED 3.15 billion.

Source: MOF UAE

2. Sweden allows offset of foreign tax credits that have been carried forward as foreign income not taxed abroad

On March 16, 2023, the Supreme Administrative Court made a ruling which prompted the Swedish Tax Agency to release statements pertaining to the application of foreign tax credits carried over from previous periods, specifically in situations where foreign income was not taxed overseas.

The scenario concerned a Swedish business that had a branch located in Belgium. In 2012, the company paid more tax on the branch’s income in Belgium than it owed in Sweden. Subsequently, in 2017, the company requested that a portion of the additional tax (foreign tax credit) be applied to offset other foreign income not taxed in its respective country. The Tax Agency rejected the request on the basis that a taxpayer can’t use excess foreign tax paid in a previous year unless the related foreign income has been taxed abroad and is subject to Swedish taxation.

This decision was challenged, and the Supreme Administrative Court determined that the current law does not imply that foreign tax credits from previous years can only be offset against other foreign income that has been taxed abroad. Consequently, the taxpayer can offset the excess foreign tax paid in 2012 against its foreign income in 2017.

Source: HFD, case no. 3829-22, Settlement of foreign tax for carry forward amounts