Understanding Small Business Tax Relief Under UAE Corporate Tax4
Small Business Relief?
The UAE introduced Small Business Relief under its Corporate Tax Law to support small businesses by reducing tax burden, simplifying compliance, and offering benefits like no Corporate Tax, simplified returns, cash basis accounting, and less documentation.
This blog explains everything you need to know about Small Business Relief in the UAE.
What is Small Business Relief?
Small Business Relief is a part of the UAE Corporate Tax Law to support small businesses. It allows a resident business with revenue of AED 3 million or less to be treated as having no taxable income which means it will not pay Corporate Tax and will not file a full tax return for that period but can submit a simplified return and may use cash basis accounting if eligible. The relief applies from 1 June 2023 to 31 December 2026 and must be elected in each tax return.
Eligibility Criteria for Small Business Relief
A business can claim Small Business Relief if all of the following conditions are met:
- It is a Resident Person for Corporate Tax purposes in the UAE.
- Its revenue is AED 3 million or less during:
- The current tax period, and
- All previous tax periods ending on or before 31 December 2026.
- It is not a member of a Multinational Enterprise Group (MNE) with consolidated revenue above AED 3.15 billion.
- It is not a Qualifying Free Zone Person, as they already benefit from separate tax relief.
- It has not artificially split the business into smaller parts just to stay under the revenue limit.
Who is Not Eligible for Small Business Relief?
A business will not qualify for Small Business Relief even if its revenue is AED 3 million or less if any of the following apply:
- It is a member of a Multinational Enterprise Group that has total consolidated revenue above AED 3.15 billion.
- It is a Qualifying Free Zone Person that already benefits from a zero percent Corporate Tax rate on qualifying income.
- It has artificially separated its business into smaller entities only to stay under the AED 3 million threshold. In such cases the Federal Tax Authority may deny the relief and recover unpaid tax along with penalties.
How to Calculate Revenue for Small Business Relief
A business must calculate revenue correctly and ensure it is not more than AED 3 million for the current period and all previous periods ending on or before 31 December 2026:
- All Income Must Be Included
The business must include all income reported in the financial statements. This includes income that is normally exempt from Corporate Tax. - Follow UAE Accounting Standards
Revenue must be calculated using accounting standards accepted in the UAE. - Foreign Income is Included
- A Juridical Person must include all income whether it is from the UAE or outside the UAE.
- A Natural Person must include only income from business or professional activity in the UAE.
- Revenue Across All Businesses
If a person operates more than one business, revenue from all businesses must be added together to check if the AED 3 million limit is exceeded. - Artificial Separation is Not Allowed
If a business is split into smaller entities only to stay under the threshold, the Federal Tax Authority may combine their revenues and deny the relief.
How to Elect for Small Business Relief
Small Business Relief is not applied automatically. A business must elect for it in each Tax Period by following these steps:
- Register for Corporate Tax with the Federal Tax Authority and get a Tax Registration Number.
- Confirm eligibility: The business must be a Resident Person and have revenue of AED 3 million or less and must not be a member of a Multinational Enterprise Group or a Qualifying Free Zone Person.
- Make the election in the Tax Return for the relevant period.
If the election is not made when filing, the business cannot claim the relief later. - Keep proper records to show that all conditions for the relief have been met, especially revenue details.
Benefits of Small Business Relief
Small Business Relief makes Corporate Tax easier for eligible businesses and the benefits are listed below:
1. No Corporate Tax Payable
A business that makes the election will be treated as having no Taxable Income. This means it will not pay Corporate Tax for that Tax Period.
2. No Taxable Income Calculation
The business will not need to calculate its Taxable Income. It does not have to adjust for exempt income or disallowed expenses.
3. Simplified Tax Return
The business can submit a simplified Tax Return instead of a full one. This reduces the effort needed for filing.
4. Cash Basis Accounting
If the revenue is AED 3 million or less, the business can use the cash basis of accounting to prepare its financial statements.
5. No Transfer Pricing Documentation
The business will not be required to keep transfer pricing documentation for that Tax Period. But it must still follow the Arm’s Length Principle when dealing with Related Parties.
6. Reduced Compliance Burden
Other tax rules such as Tax Losses or the General Interest Deduction Limitation Rule will not apply during the period the relief is claimed. This makes the process easier for small businesses.
Impact on Other Corporate Tax Provisions
When a business elects for Small Business Relief, it will be treated as having no Taxable Income for that period. This reduces compliance but also removes access to some tax benefits. The main impacts are:
- Tax Losses
The business cannot use or generate Tax Losses for the period it claims Small Business Relief. Any unused Tax Losses from earlier periods can still be carried forward and used in a future period where the relief is not applied. - General Interest Deduction Limitation Rule
The business will not deduct or carry forward any Net Interest Expenditure during the period of relief. Net Interest Expenditure from earlier periods may still be used in a future period if the relief is not elected. - Other Reliefs
The business will not be able to claim Business Restructuring Relief or relief on transfers within a Qualifying Group for that Tax Period. - Exempt Income Rules
The rules for exempt income will not apply.
All income must be included in revenue for checking Small Business Relief eligibility even if that income is normally exempt from tax. - Transfer Pricing Documentation
The business will not be required to maintain transfer pricing documentation for that period. However, it must still follow the Arm’s Length Principle when dealing with Related Parties.
Compliance Obligations for Small Business Relief
Even if a business elects for Small Business Relief, it must still follow certain compliance rules under the UAE Corporate Tax Law. The key compliance obligations are:
- Register for Corporate Tax
The business must register with the Federal Tax Authority and obtain a Tax Registration Number. - Elect for Relief in the Tax Return
The business must clearly make the election for Small Business Relief in its Tax Return for each period. If the election is not made, the relief cannot be claimed later. - File the Tax Return on Time
The business must submit the Tax Return within the deadline set by the FTA, even if it is a simplified return. - Keep Proper Records
The business must maintain documents that show revenue details and confirm eligibility for the relief. Records must be kept for at least seven years. - Follow the Arm’s Length Principle
If the business deals with Related Parties, it must ensure that all transactions follow the Arm’s Length Principle even if transfer pricing documentation is not required.
Conclusion
Small Business Relief helps eligible UAE businesses reduce Corporate Tax and make compliance easier.
E-invoicing will be mandatory for B2B and B2G transactions starting from July 2026 so it is important to get your systems ready on time.
We recommend using Flick e-invoicing software to automate your process and ensure full compliance.
If you have any question about Small Business Relief or e-invoicing you can connect with us and our team will assist you.
FAQ
Is Small Business Relief automatic?
No. You must elect for it in your Tax Return each year.
What are the benefits of Small Business Relief?
No Corporate Tax, simplified tax return, use of cash accounting, and less paperwork.
How long is the relief available?
It is available from 1 June 2023 to 31 December 2026.
Do I need to keep records?
Yes. Keep revenue and eligibility records for 7 years.