Small Business Relief is often described in one sentence, “businesses under AED 3 million pay zero Corporate Tax,” and that summary is close enough to be dangerous. The actual mechanism is more specific: a rolling revenue test, a hard 2026 expiry date, exclusions that catch more businesses than expected, and a genuine trade-off against carrying forward losses that many businesses never think through before electing it.
What Is Small Business Relief?
Small Business Relief is an elective relief under Article 21 of Federal Decree-Law No. 47 of 2022 that allows an eligible Resident Person to be treated as having derived no taxable income for a Tax Period, resulting in an effective 0 percent Corporate Tax outcome for that period.
It exists specifically to reduce the Corporate Tax burden and compliance costs for start-ups, small businesses, and micro-businesses, distinct from the standard 0 percent rate band that applies automatically to the first AED 375,000 of taxable income for any taxable person.
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Eligibility for Small Business Relief
Small Business Relief is available to taxable persons that are Resident Persons under UAE Corporate Tax Law, meaning UAE-incorporated companies and other UAE-resident taxable persons, provided their revenue meets the applicable threshold and they do not fall within one of the specifically excluded categories.
Eligibility is assessed on a rolling basis: a business must have revenue below the threshold not only in the current Tax Period, but in every Tax Period since it became subject to Corporate Tax. Exceeding the threshold in any single Tax Period permanently disqualifies the business from electing Small Business Relief in any future period, even where revenue subsequently falls back below the threshold.
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The AED 3 Million Revenue Threshold
Under Ministerial Decision No. 73 of 2023, the Small Business Relief revenue threshold is set at AED 3,000,000 for each Tax Period. Revenue is calculated based on the applicable accounting standards accepted in the UAE, meaning it reflects a business’s actual gross revenue for the period, not its taxable income or profit after expenses.
A business with AED 2,900,000 in revenue but a net loss for the period is assessed against the same AED 3,000,000 revenue threshold as a business with the same revenue and a healthy profit; the threshold is a revenue test, not a profitability test.
Also check: Corporate Tax Services in UAE
Relevant Tax Periods
The AED 3,000,000 threshold applies to Tax Periods starting on or after 1 June 2023 and continues to apply only to Tax Periods ending on or before 31 December 2026.
This makes Small Business Relief a genuinely temporary mechanism rather than a permanent feature of the UAE Corporate Tax regime; there is currently no confirmed relief available under this specific provision for Tax Periods ending after that date, though the Ministry of Finance has not ruled out extending or replacing it.
Businesses relying on Small Business Relief as part of longer-term tax planning should treat 31 December 2026 as a hard boundary for this specific relief unless and until further guidance confirms otherwise.
Electing Small Business Relief
Small Business Relief does not apply automatically simply because a business’s revenue falls under the AED 3,000,000 threshold.
It must be actively elected within the Corporate Tax return for each eligible Tax Period, meaning a business needs to make this choice period by period rather than opting in once and having it apply indefinitely afterward.
A business that qualifies but does not elect the relief for a specific period remains subject to the standard Corporate Tax rules for that period instead.
Also check: Corporate Tax Services in UAE
Exclusions From Small Business Relief
Two categories of taxable person are specifically excluded from Small Business Relief regardless of their revenue level. Qualifying Free Zone Persons cannot elect Small Business Relief; a Free Zone business benefiting from the QFZP 0 percent rate on Qualifying Income must choose that regime instead, since the two cannot be combined.
Constituent Companies of a Multinational Enterprise Group with consolidated group revenue exceeding AED 3.15 billion, the same threshold used for Country-by-Country Reporting purposes, are also excluded, regardless of how small that specific UAE entity’s own individual revenue might be.
A general anti-abuse rule under Article 50 of the Corporate Tax Law also applies specifically to Small Business Relief. Where the FTA determines that a taxable person has artificially separated its business or business activities into multiple smaller entities specifically to stay under the AED 3,000,000 threshold, while the combined revenue of the genuinely single underlying business exceeds that threshold, this is treated as an arrangement to obtain a Corporate Tax advantage, and the FTA can adjust the taxable person’s position accordingly.
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Treatment of Taxable Income Under Small Business Relief
A business that elects Small Business Relief for a Tax Period is treated as having derived no taxable income at all for that period, rather than having its actual taxable income reduced to zero through deductions or exemptions.
This has a practical accounting benefit alongside the tax benefit: businesses electing Small Business Relief can generally prepare their financial statements on a cash basis of accounting rather than the accrual basis otherwise expected, simplifying their bookkeeping and compliance burden alongside their tax position.
Businesses electing the relief also benefit from reduced transfer pricing documentation requirements for that period, reflecting the lower compliance burden the relief is designed to provide.
Interaction With Free Zone Businesses
Small Business Relief and Qualifying Free Zone Person status are mutually exclusive; a Free Zone business cannot elect Small Business Relief while also claiming the QFZP 0 percent rate on its Qualifying Income for the same period. A Free Zone business below the AED 3,000,000 threshold that does not meet, or does not wish to pursue, the specific conditions for QFZP status could potentially still be eligible for Small Business Relief as a standard taxable person, but a Free Zone business already benefiting from confirmed QFZP status has no need for, and cannot combine it with, Small Business Relief. A full comparison of Free Zone Corporate Tax treatment is covered in our dedicated Qualifying Free Zone Person guide.
Interaction With Tax Losses
Electing Small Business Relief carries a genuine trade-off against tax losses that businesses should weigh carefully before making the election. A taxable person that elects Small Business Relief for a given Tax Period cannot carry forward any Tax Losses, or any disallowed Net Interest Expenditure, that arose during that specific period. Since a business electing the relief is treated as having no taxable income at all for the period, there is effectively no loss recognized for tax purposes to preserve.
This matters most for a business genuinely expecting a loss-making period. A business with revenue under AED 3,000,000 that expects a significant loss for the current Tax Period may be better off not electing Small Business Relief, allowing that loss to be recognized and carried forward under the standard Tax Loss rules, rather than electing the relief and forfeiting the loss entirely for that period.
Compliance Requirements
Electing Small Business Relief does not remove a business from Corporate Tax registration and filing obligations. A business claiming the relief still needs to be registered with the FTA, still needs to file a Corporate Tax return for the relevant Tax Period confirming its revenue position and formal election, and still needs to maintain records supporting its revenue calculation and eligibility, including confirming it has not exceeded the threshold in any prior period since becoming subject to Corporate Tax.
Examples of Small Business Relief Application
Example 1: Eligible business. A UAE consulting business has revenue of AED 1,800,000 in its current Tax Period, and revenue below AED 3,000,000 in every prior period since Corporate Tax applied to it. It elects Small Business Relief for the current period and is treated as having no taxable income, resulting in AED 0 Corporate Tax for that period.
Example 2: Permanent disqualification. A business had revenue of AED 2,500,000 in its first Tax Period and elected Small Business Relief. In its second Tax Period, revenue grows to AED 3,400,000, exceeding the threshold. The business cannot elect Small Business Relief for that second period, and even if revenue falls back to AED 2,000,000 in a later period, it remains permanently ineligible for Small Business Relief going forward, since it has already exceeded the threshold once.
Example 3: The loss trade-off. A business with AED 2,200,000 in revenue expects a Tax Loss of AED 400,000 for the current period due to a difficult year. If it elects Small Business Relief, it pays AED 0 in Corporate Tax for the period, but the AED 400,000 loss is not preserved for future use. If it does not elect the relief, it still pays AED 0 in Corporate Tax, since AED 400,000 in losses obviously exceeds the AED 375,000 threshold that would otherwise apply, but it retains the AED 400,000 Tax Loss to offset future taxable income under the standard carry-forward rules.
Frequently Asked Questions (FAQs)
What is Small Business Relief in the UAE?
What is the revenue threshold for Small Business Relief?
Until when is Small Business Relief available?
Who is excluded from Small Business Relief?
Does Small Business Relief apply automatically?
What happens to Tax Losses if I elect Small Business Relief?
Can a business artificially split into smaller entities to qualify?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Small Business Relief is one part of the full Corporate Tax picture. For a complete overview of UAE Corporate Tax rates, calculation, and compliance, see our complete UAE Corporate Tax guide.
Farahat & Co. helps UAE businesses assess Small Business Relief eligibility, weigh the trade-off against tax losses, and elect the relief correctly within their Corporate Tax return.
Contact Farahat & Co. today to discuss your Corporate Tax requirements.
