UAE Corporate Tax

Understanding Small Business Relief Under UAE Corporate Tax Law

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UAE corporate tax compliance and small business relief.

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

  1. Administrative Relief
    Eligible businesses can:

    • File simplified tax returns.
    • Prepare financial statements on a cash basis.
    • Avoid complex record-keeping requirements.
  2. 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.

UAE Corporate Tax & Investment Managers – Rules & Exemptions

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Below is a high-level overview of how UAE corporate tax (CT) applies to investment managers operating in the UAE under the Federal Decree-Law No. 47 of 2022 (and related Ministerial Decisions).

This is a general summary, not legal advice—always check with a UAE tax professional for your specific circumstances.

General Rule: UAE-Resident Businesses are Subject to CT

  1. UAE-Resident Companies
    • Any UAE-incorporated entity, including an investment management firm, is considered resident for UAE CT.
    • Such entities are subject to 9% corporate tax on annual taxable profits exceeding AED 375,000, with 0% applicable on the first AED 375,000 of taxable profit.
  2. UAE Branches of Foreign Companies
    • A foreign investment manager operating through a branch in the UAE would typically be subject to CT on the branch profits attributable to the UAE activities.

Potential Exemptions or Special Regimes

  1. Qualifying Free Zone Person
    • If the investment manager is registered in a Free Zone (e.g., DIFC, ADGM) and meets the “Qualifying Free Zone Person” (QFZP) criteria, it may benefit from a 0% CT rate on “Qualifying Income.”
    • However, you must satisfy strict substance, independence, and activity requirements (including not generating income from the UAE mainland unless it is “passive” or otherwise allowed). If the manager’s clients or activities are primarily in the mainland, the 9% rate likely applies.
  2. Qualifying Investment Fund Exemptions
    • The law provides an exemption for “Qualifying Investment Funds”, but generally the fund itself might be exempt—not necessarily the manager who earns fee income.
    • In most structures, the manager is a separate legal entity providing services for a fee, so it would not be exempt unless it also meets other QFZP or statutory exemption criteria.
  3. “No PE” for Offshore Funds vs. Manager Profits
    • The concept of a “no permanent establishment (PE)” safe harbor (sometimes loosely compared to the UK “investment manager exemption”) is about protecting non-resident investors/funds from UAE tax.
    • That does not exempt the UAE-based manager’s own profits from UAE corporate tax; it simply prevents the offshore fund from being taxed in the UAE. The manager’s own income (fees, performance fees, etc.) is still subject to normal UAE CT rules.

Conclusion: Most Investment Managers Pay UAE Corporate Tax

  • Yes, in general, if you run an investment management or fund management business from the UAE, you are subject to UAE corporate tax on the profits of that business, unless you qualify for a free zone or other specific exemption.
  • Even in a free zone (e.g., DIFC or ADGM), you only get the 0% rate on “Qualifying Income” if you meet all conditions of being a Qualifying Free Zone Person.
  • Simply providing investment management services (charging management or performance fees) does not automatically grant an exemption—you would file corporate tax returns and be taxed at 0% on your first AED 375,000 of profits and 9% on the excess.

Bottom line:

  • If you are a mainland or onshore investment manager, expect to pay UAE CT at the standard rates.
  • If you are in a free zone and meet QFZP criteria, you may enjoy a 0% rate on qualifying income, but must comply with free zone and UAE CT rules to maintain that status.
  • The law’s safe harbor that protects offshore funds from having a UAE PE does not exempt the UAE manager’s own fee income from CT

To learn more about how Affiniax can help you, please contact us at mail@affiniax.com

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