In 2022, the UAE introduced the Corporate Tax Law to enhance its fiscal framework, requiring businesses to pay taxes on their profits. However, recognising the unique challenges faced by smaller enterprises, the government introduced a relief to support these businesses, known as the Small Business Relief.
This relief is a measure to ease compliance and tax obligations during the early stages of the Corporate Tax regime for eligible small businesses. If the conditions of the relief are fulfilled, it can significantly reduce tax liabilities. At the same time, it requires accurate bookkeeping and documentation.
What is Small Business Relief?
Small Business Relief is a provision designed to support small enterprises during the implementation of the Corporate Tax regime. It simplifies tax compliance and reduces financial burdens by exempting eligible businesses from calculating taxable income or paying Corporate Tax for qualifying periods.
Who is Eligible?
To benefit from Small Business Relief, businesses must:
Any eligible Taxable Person (a Resident Taxable Person either a Natural Person or a Juridical Person): This includes individuals or entities conducting business within the UAE.
Have Revenue ≤ AED 3 million: Revenue should not exceed AED 3 million for the current and all prior tax periods that end on or before December 31, 2026.
Who is Not Eligible?
Small Business Relief is unavailable to:
Members of Multinational Enterprise Groups (MNEs): Companies with global operations and consolidated revenue exceeding AED 3.15 billion.
Qualifying Free Zone Persons: Free Zone persons that already enjoy a 0% Corporate Tax rate on qualifying income.
Artificially Separated Entities: Businesses attempting to split operations to qualify for relief will be disqualified.
Key Benefits
- Administrative Relief
Eligible businesses can:- File simplified tax returns.
- Prepare financial statements on a cash basis.
- Avoid complex record-keeping requirements.
- Tax Exemption
No Corporate Tax is payable for periods when Small Business Relief is elected.
How to Apply
Eligible businesses must:
- Register for Corporate Tax: Obtain a Tax Registration Number (TRN) from the Federal Tax Authority (FTA).
- Elect for Relief in the Tax Return: This election must be made annually for the relevant tax period.
Revenue Considerations
- What Counts as Revenue? All income generated during a tax period, including sales, asset disposals, and other gross income.
- Exclusions: VAT collected from sales is not included in revenue calculations.
- Certain types of income, referred to as Exempt Income, are not subject to taxation. However, this differentiation is only applicable to businesses that are required to calculate their Taxable Income. Consequently, the rules governing Exempt Income do not apply to businesses that opt for Small Business Relief.
Compliance and Restrictions
Electing for Small Business Relief comes with specific conditions:
- Losses and Deductions: Businesses cannot accrue, utilize or transfer tax losses or interest expenditure during the relief period.
- Exclusions from Other Reliefs: Provisions like intra-group asset transfers and restructuring relief are unavailable.
- Transfer Pricing Documentation: Not required for entities benefiting from the relief.
Examples of Eligibility
Example 1: Eligible Business
Mr. X operates a business with AED 2 million in revenue in 2025. He can elect for Small Business Relief, provided his revenue remains under AED 3 million.
Example 2: Exceeding Revenue Threshold
Ms. Y’s business earned AED 1.9 million in 2026 but exceeded AED 3 million in 2025. She is no longer eligible for relief, even if her revenue drops below the threshold in subsequent periods.
Important Considerations
One-Time Revenue Spike: Even a single tax period with revenue exceeding AED 3 million disqualifies a business permanently from the relief.
Impact on Future Benefits: Businesses lose eligibility for other Corporate Tax provisions during the relief period.
Conclusion
Small Business Relief offers valuable support to UAE-based small businesses by simplifying tax compliance and reducing financial obligations. However, businesses must carefully assess their eligibility and long-term benefits before opting for this relief. From compliance to optimisation, Affiniax Partners helps you navigate UAE Corporate Tax Laws.
For more information, please get in touch with us at mail@affiniax.com.
