Small Business Relief in the UAE: A Guide for Business Owners

The UAE introduced Small Business Relief to support small businesses by reducing their corporate tax compliance burden. This initiative helps businesses with revenue under AED 3 million streamline tax reporting and minimize tax liabilities. For businesses that qualify, this relief means no corporate tax liability, simplified tax returns, and reduced compliance obligations. However, not all businesses are eligible, and certain conditions must be met. This blog provides a clear eligibility checklist, a flowchart to determine qualification, a table summarizing key differences, and case studies to illustrate real-world applications.
Feb 6



Eligibility Checklist

To determine whether your business qualifies for Small Business Relief, check the following:


  1. Is your revenue below AED 3 million for the current and previous tax periods?

  2. Is your business a Resident Person (either a Natural Person or a Juridical Person)?

  3. Is your business NOT a part of a Multinational Enterprise (MNE) Group? (MNEs are groups with revenue exceeding AED 3.15 billion.)

  4. Is your business NOT a Qualifying Free Zone Person? (Qualifying Free Zone Persons already enjoy a 0% corporate tax rate on qualifying income.)

  5. Has your business revenue exceeded AED 3 million in any tax period before 31 December 2026? (If so, you are ineligible for relief in future tax periods.)

  6. Is your business artificially split into multiple entities to qualify? (If found to be artificially separated, your tax relief can be revoked, and penalties may apply.)

  7. Have you elected for Small Business Relief in your tax return? (This is not automatic and must be actively selected when filing.)


If your business meets all the above criteria, you may elect for Small Business Relief and avoid corporate tax for the qualifying period.


Flowchart: Is Your Business Eligible for Small Business Relief?

Below is a structured flowchart to help businesses determine their eligibility. You can prepare this on Canva and share it with customers for quick reference.

Write your awesome label here.

Key Differences: Small Business Relief vs. Standard Corporate Taxation

Criteria

If Small Business Relief is elected

If Small Business Relief is NOT elected

Required to register for Corporate Tax

✅ Yes

✅ Yes

Required to file a full tax return

❌ No

✅ Yes

Can file a simplified tax return

✅ Yes

❌ No

Required to calculate taxable income

❌ No

✅ Yes

Corporate Tax liability

❌ None

✅ Based on taxable income

Can carry forward tax losses

❌ No

✅ Yes

Can apply transfer pricing rules

❌ No

✅ Yes


Case Studies: Real-World Application

Case Study 1: Eligible Business Electing for Relief

Mr. X runs a business in Abu Dhabi.

  • He started trading in January 2025.

  • His revenue for 2025 is AED 2,000,000.

  • He elects for Small Business Relief in his tax return.

  • Outcome: Mr. X pays zero corporate tax and benefits from simplified reporting.


Case Study 2: A Business Exceeding the Revenue Threshold

Ms. Y runs a business in Sharjah.

  • Her revenue in 2025 was AED 4,300,000, but in 2026 it dropped to AED 1,900,000.

  • Even though her revenue is now below AED 3M, she is not eligible for Small Business Relief because she previously exceeded the limit.

  • Outcome: Ms. Y must calculate her taxable income and pay corporate tax.


Case Study 3: A Non-Resident Company

ABC Ltd is a US-based company with a Dubai office.

  • It generates AED 2,500,000 in revenue, with AED 1,000,000 attributable to its UAE office.

  • Since it is a Non-Resident Person, it is not eligible for Small Business Relief.

  • Outcome: ABC Ltd must file a full tax return and calculate its taxable income.


 

FAQs: Small Business Relief in the UAE

  1. Is Small Business Relief automatic?

    • No, businesses must elect for it in their tax return.


  2. What happens if my revenue exceeds AED 3 million in one tax period?

    • You become ineligible for relief in future tax periods, even if revenue falls below AED 3 million again.


  3. Can a Free Zone Person apply for Small Business Relief?

    • Only if they are NOT a Qualifying Free Zone Person.


  4. Can a business carry forward tax losses under Small Business Relief?

    • No, tax losses cannot be accrued or carried forward.


  5. Does VAT registration affect Small Business Relief eligibility?

    • No, VAT registration and compliance remain separate from corporate tax obligations.


  6. What accounting standards apply for revenue calculation?

    • Businesses may use IFRS, IFRS for SMEs, or Cash Basis Accounting (if revenue is below AED 3 million).




Conclusion

Small Business Relief is a significant benefit for UAE-based SMEs, allowing them to reduce their tax burden and focus on business growth. By electing for this relief, businesses can enjoy zero corporate tax liability, simplified filing, and fewer compliance obligations.

If your business qualifies, ensure you elect for relief in your tax return to maximize the benefits.

Stay compliant and consult a tax advisor if you need clarification on your eligibility or corporate tax planning.

1. Limited Liability Company (LLC)
Overview: An LLC is the most common form of business entity for foreign investors in the UAE. It requires a minimum of two and a maximum of 50 shareholders, with the liability of shareholders limited to their shares in the company’s capital.
Key Features:
Local Sponsorship: Traditionally, an LLC required 51% ownership by a UAE national, but recent changes allow for 100% foreign ownership in certain sectors.
Capital Requirements: No minimum capital requirement in many Emirates, though some free zones may have specific requirements.
Flexibility: Suitable for a wide range of commercial activities except for insurance, banking, and investment.
Advantages:
Flexibility in business operations.
Limited liability protects shareholders’ personal assets.
Capability to open branches or subsidiaries.
2. Free Zone Company
Overview: Free zones are designated areas offering specific economic advantages. Businesses in these zones can be 100% foreign-owned, and they benefit from tax exemptions and simplified import/export procedures.
Types of Free Zone Entities:
Free Zone Establishment (FZE): Single shareholder.
Free Zone Company (FZC): Multiple shareholders.
Branch of a Foreign Company: No share capital required.
Key Features:
Tax Benefits: 0% corporate and personal tax for a set number of years.
Ownership: 100% foreign ownership.
Repatriation: Full repatriation of profits and capital.
Advantages:
Ideal for export-oriented businesses.
Simplified business setup and operational processes.
Clusters of similar businesses encourage networking and growth.
3. Branch Office
Overview: A branch office is an extension of a foreign parent company that can conduct business in the UAE but does not have a separate legal identity from the parent company.
Key Features:
Scope: Can carry out activities similar to those of the parent company, excluding manufacturing.
Ownership: Requires a local service agent but does not require a local sponsor or partner.
Liability: Liabilities extend to the parent company.
Advantages:
Direct representation of the parent company.
Beneficial for companies seeking to expand their market presence in the UAE.
4. Representative Office
Overview: A representative office can be set up to promote the parent company’s products or services and facilitate contracts but cannot engage in commercial activities or generate profit.
Key Features:
Scope: Limited to marketing and promoting the parent company.
Ownership: Requires a local service agent.
Liability: Limited as it does not engage in profit-generating activities.
Advantages:
Cost-effective way to establish a presence in the UAE.
Facilitates market research and business development.
5. Public Joint Stock Company (PJSC)
Overview: A PJSC is suitable for large enterprises and requires at least 10 founders who subscribe to shares through a public offering.
Key Features:
Capital Requirements: Minimum share capital of AED 10 million.
Public Subscription: Shares can be publicly traded on the stock market.
Management: Managed by a board of directors.
Advantages:
Access to capital through public markets.
Enhanced corporate visibility and credibility.
6. Private Joint Stock Company (PrJSC)
Overview: Similar to a PJSC but does not offer shares to the public. It is ideal for larger private ventures and requires at least three shareholders.
Key Features:
Capital Requirements: Minimum share capital of AED 2 million.
Ownership: Shares are privately held and not publicly traded.
Management: Managed by a board of directors.
Advantages:
Suitable for large private investments.
Greater control over company management and operations.
Conclusion
Choosing the right legal structure is crucial for the success of a business in the UAE. Each structure offers distinct advantages, regulatory requirements, and suitability depending on the business’s nature and goals. Understanding these options helps entrepreneurs and investors make informed decisions, ensuring their business operates effectively and complies with UAE regulations.
For more detailed information and guidance on setting up a business in the UAE, consult the UAE Ministry of Economy and specific free zone authorities such as Dubai Multi Commodities Centre (DMCC) or Jebel Ali Free Zone (JAFZA).

Don’t wait until the last minute to file your corporate tax return.

At Fastlane, we explore every possible way to maximize your benefits for Corporate Tax filing, from Claiming Small Business Relief to ensuring you're fully compliant and optimized

Connect With Our Experts Now!

Write your awesome label here.
Created with