Small Business Relief in UAE Corporate Tax: Who Qualifies and How It Works
If your UAE business earns less than AED 3 million a year, you may not need to pay corporate tax. Under the Small Business Relief scheme, qualifying businesses can report zero taxable income, making the process faster and easier.
It’s a practical option for startups, freelancers, and small enterprises. But there are conditions to meet, and the relief isn’t automatic. Here’s what you need to know to apply correctly and avoid common mistakes.
What Is Small Business Relief?
Small Business Relief is one of the UAE’s most straightforward corporate tax incentives. It allows eligible businesses to be treated as if they earned no taxable income making the tax process much simpler. While the standard corporate tax rate in the UAE is nine percent, this relief removes the need to pay tax for those who qualify, as long as they meet a few key requirements.
This measure was introduced under Article 21 of Federal Decree-Law No. 47 of 2022 and is part of the wider effort to support startups, micro-businesses, and independent workers.
What Does the Relief Actually Do?
If you meet the conditions, your business is treated as having zero taxable income. That means:
- You do not pay corporate tax for the period
- Your taxable income is reported as zero
- You still submit a tax return, but with simpler financial details
This is not a permanent exemption, it applies year by year, and you must make the election for every tax return where you want it to count.
Who Can Apply for Small Business Relief?
Only certain types of businesses are eligible. Here’s what you need to meet:
1. You Must Be a Resident Person
This includes:
- Companies set up in the UAE, whether on the mainland or in a free zone
- Individuals working for themselves, such as freelancers, consultants, and sole proprietors, if they are operating legally in the UAE
You cannot apply if you are a non-resident or an exempt entity that falls outside the definition of a taxable person.
2. Your Revenue Must Stay Below AED 3 Million
This is a strict limit. To qualify, your business revenue:
- Must be three million dirhams or less for the current tax period
- Must have stayed at or below that amount for any earlier tax periods starting from 1 June 2023
Once your revenue goes over that limit, you no longer qualify even if your income drops again later. The change is permanent starting from the tax period where you cross the threshold.
3. The Timing Must Be Right
Small Business Relief is available for tax periods that start on or after 1 June 2023. As of now, the relief applies only until the end of 2026. Unless the Cabinet extends it, the option will end after 31 December 2026.
That means if your financial year starts in July, you can begin using the relief right away. But if your financial year begins in January, you will need to wait until the next full period after June 2023.
Who Cannot Use Small Business Relief?
Even if your revenue stays under the limit, some businesses are excluded. Here’s a breakdown of who is not eligible:
- Companies that are part of a multinational group with consolidated global revenues of at least seven hundred fifty million euros
- Free zone companies that qualify for the zero percent tax rate
- Any business that is part of a tax group
- Businesses that choose not to apply the relief for strategic or reporting reasons
- Companies involved in activities that are specifically excluded under Ministerial Decisions
If you fall into any of these categories, Small Business Relief does not apply even if your income is modest.
How to Apply for the Relief
It is not automatic. Every eligible business must choose to apply the relief when filing its corporate tax return. If you forget to make the election, the system will assume you are not using the relief for that year.
Here’s how it works:
- You file your corporate tax return through the EmaraTax system
- You tick the option to apply for Small Business Relief
- You complete the form with simplified disclosures
Even though no tax is due, the return is still required. This helps the Federal Tax Authority monitor compliance and track the use of the relief.
What Happens Inside the Return?
If you’re applying for Small Business Relief, the form will reflect zero taxable income. But a few things also change in the background:
- You cannot carry forward any tax losses from that year
- You lose the ability to carry forward interest that was disallowed
- You are not required to submit audited financial statements unless your license or sector requires it
This makes the filing lighter and faster, but it also means you give up a few benefits in exchange for skipping the tax payment.
Why Does This Matter?
Small Business Relief is more than just a tax break. It reduces paperwork, removes the need for full audits in most cases, and keeps your business off the radar for detailed tax reviews. It is meant to give smaller players the breathing room to grow, especially during their first few years under the new system.
However, using the relief without qualifying can lead to fines or future audits. That is why it is important to keep detailed records of your revenue, your registration, and your election to apply the relief.
Final Thought
Small Business Relief is a well-designed tool for businesses that are just getting started or staying lean. It gives you a chance to grow without the added pressure of full tax compliance. But like any tax rule, it needs to be used correctly.
Stay within the revenue limit, file your return on time, and keep clean records. If you’re not sure whether your business qualifies, it’s a good idea to speak with a tax advisor or use a smart platform like Tax Star to keep everything in check.
Need help figuring out your eligibility or filing your next return? Just reach out. The right help now can save a lot of time and money later.
FAQs
Can I use this relief forever?
No. It is scheduled to expire at the end of 2026 unless the government extends it.
What if my revenue goes over three million just once?
If that happens, you lose eligibility for all future periods—even if your revenue drops again later.
Do I need to audit my books if I use the relief?
No audit is needed unless another regulation (such as licensing rules) requires it.
Can I claim business expenses or losses while using the relief?
No. You report zero taxable income, so there is no need to offset costs. Losses also cannot be carried forward.
What if I forget to make the election?
If you miss it during filing, the relief will not apply for that year. You cannot add it later.
Does this apply to VAT as well?
No. VAT and Corporate Tax are separate systems. Small Business Relief applies only to corporate income tax.
Do I still need to register for Corporate Tax if I qualify?
Yes. All eligible businesses must register even if they plan to apply the relief.
Can I be in a Tax Group and use the relief?
No. Tax groups are not allowed to use Small Business Relief.
Can freelancers use it?
Yes. As long as your business is properly registered and your revenue is under the threshold, freelancers and independent professionals can apply.
Can I switch to the regular tax system if I want to?
Yes. You can choose not to apply the relief, but once you do, that choice applies for the full tax year.
