Small Business Tax Preparation Guide for 2025

Running a small business is tough, and taxes make it even harder. Tax compliance is a critical responsibility for every small business operating in the UAE. With increasing evaluation and regularly changing rules under the UAE Corporate Tax framework, prepare your taxes accurately in 2025 to avoid penalties.

We understand the challenges that small businesses face, and that’s why we have come up with this blog, a tax preparation guide for small businesses. This blog offers a structured approach to small business tax preparation, covering important practices such as expense tracking, recordkeeping, deduction management, and the use of accounting tools.

Here are ten practices that small businesses should follow regarding tax preparation and accounting to achieve an accurate and compliant tax filing.

‍

1. Organise Your Financial Records Year-Round

Maintaining accurate financial records and keeping them organised all year round will guarantee a compliant tax filing. There is a chance of overpaying taxes, incurring penalties, or being audited if tax records are disorganised.

Besides this, having detailed expense records helps you claim all possible tax benefits by supporting credits and deductions.

Some of the practical steps to keep financial records up to date throughout the year:

• Document all transactions, even the small ones.
• Categorize your transactions for income and expenses (e.g., sales revenue, office supplies, marketing expenses).
• Maintain all supporting documents, such as receipts, invoices, bank statements, and contracts. You can also keep digital copies, but make sure they are backed up.
• Automate transaction tracking by connecting bank accounts and credit cards for automatic transaction imports.
• Use invoice and expense management software to create and send invoices, track expenses, and manage vendor payments.
• Reconcile at least monthly bank accounts, credit card accounts, and other financial accounts.
• Keep records of reconciliations, including any adjustments made.

‍

2. Understand Your Tax Obligations

It’s important to understand the UAE’s tax law and its various obligations for small businesses' tax preparation, especially those of corporate tax and VAT. Maintaining accurate and complete financial record-keeping, including invoices, receipts, bank statements, and contracts, is mandatory.

Small businesses must deal with the complexities of calculating taxable income, applicable tax rates, and possible exemptions such as: 

• The UAE has introduced a small business relief scheme, which provides certain exemptions for businesses generating profits less than AED 375,000. This is designed to ease the tax burden on smaller enterprises.
• Businesses operating within designated Free Zones in the UAE are also eligible for specific tax exemptions, particularly based on income derived from activities within the Free Zone.
• The UAE government may incentivise specific industries or sectors  to promote economic development. These incentives could be tax exemptions, reduced tax rates, or other tax benefits.

The Federal Tax Authority (FTA) sets strict deadlines for tax filings and payments. Missing these deadlines can result in substantial penalties, which can impact your small business tax preparation and financial stability.

‍

3. Separate Personal and Business Finances

The Federal Tax Authority insists on transparent and auditable financial records. Mixing personal and business funds can make it very confusing to track business income and expenses accurately.

Also, FTA may examine financial records during a tax audit, and mixed funds may raise suspicions that could result in fines or additional inquiries. That is why it is strictly advised to separate personal and business finances. 

Some more reasons to separate personal and business finances are: 

• Dedicated accounts eliminate the need to sort personal transactions, creating clear business records.
• Simplifies preparation of crucial reports like profit/loss and balance sheets for taxes and analysis.
• A business account helps establish a separate business credit history.
• Separate finances provide a clear view of business income, expenses, and cash flow.

By separating personal and business finances, small business owners in the UAE can increase financial clarity, simplify bookkeeping, and ensure compliance with tax regulations.

‍

4. Understand The Difference Between Net and Gross Income

It is very important to understand the difference between net and gross income for accurate tax filing. Gross income represents the total revenue your business generates before any deductions. It's the raw amount of money your business earns from its sales or services.   

For corporate tax purposes, gross income is the starting point for calculating your taxable profit.

It's the total revenue before subtracting any business expenses, costs of goods sold, or other allowable deductions.

Net Income = Gross Income – Expenses

For VAT-registered businesses, the gross income will include the output VAT that has been collected from customers. For example, if your business sells goods for AED 100,000, that AED 100,000 is your gross income.

Net income is what remains after you've subtracted all business expenses from your gross income. It reflects your business's actual profit. Net income is the figure used to calculate your corporate tax liability.

So, if your business has a gross income of AED 100,000 and total expenses of AED 30,000, your net income is AED 70,000.

In the UAE, corporate tax is subjected on net income. However, when dealing with VAT, you'll need to accurately track both gross sales (which include output VAT) and net sales (excluding VAT). This is vital for accurate VAT reporting.

‍

5. Identify and Claim Every Available Deduction

Carefully analyze allowable business premises expenses to never miss out on valuable deductions.  Some of the deductions and credits that you might be eligible for: 

• Home office deduction: If you work from home, you can deduct some of your rent, utilities, and upkeep.
• Vehicle Expenses: Submit claims for maintenance, insurance, mileage, and fuel used for work-related purposes.
• Startup Costs: Subtract costs incurred before your business's revenue-generating activities.
• Retirement Contributions: Contributing to plans like GPSSA and EOSG can lower your taxable income.

‍

6. Stay Informed on Tax Laws

Tax regulations keep changing, and not being properly aware of it can impact your business. The UAE's corporate tax law, effective for financial years commencing on or after June 1, 2023, is relatively new. Businesses must monitor key areas like changes to taxable income calculations, allowable deductions, tax rates, and specific industry exemptions.

More specifically, pay attention to any changes in the VAT treatment of specific goods or services, as well as updates to electronic invoicing and record-keeping requirements.

‍

7. Use Tax and Accounting Software

Invest in accounting software, it will simplify your tax filing journey. Choose accounting software that is specifically designed to handle VAT transactions in accordance with FTA regulations. This includes features for generating tax invoices, tracking input and output VAT, and producing VAT return reports.

Look for software that tracks income and expenses, calculates taxable income, and generates reports that align with the FTA's corporate tax requirements.

Key points to keep in mind while selecting accounting software or professionals: 

• Software selection should prioritize compliance with UAE tax regulations and FTA requirements.
• Professional review is essential for accuracy and compliance, even with the use of software.
• Data security and privacy are paramount when choosing accounting and tax software.
• Ensure that the software and professional you choose are up to date on the newest FTA regulations.

If you're looking for a solution designed for the UAE’s tax law, Alaan is a smart choice. Alaan’s accounting software is built with local compliance in mind, offering automated expense tracking, real-time VAT handling, and corporate tax-ready reporting. 

Book a demo to explore how their UAE tax-compliant accounting software can work for your business.

‍

8. Keep Copies of Tax Documents

The FTA mandates specific retention periods for tax-related documents. Generally, businesses in the UAE are required to maintain their tax-related records for a minimum of five years from the end of the tax period to which they relate.

It is very important for businesses to retain documents like tax returns, invoices, receipts, and other supporting documents for a minimum of five years from the end of the relevant tax period. This applies to both corporate tax and VAT filings.

Moreover, maintaining copies of your filings and supporting documentation ensures you can easily provide evidence of compliance during an FTA audit. Here’s a table showing the list of supporting documents. 

‍

9. Avoid Common Tax Preparation Pitfalls

Inaccurate record-keeping is a major issue. Failing to maintain accurate and detailed records of all financial transactions can lead to inaccurate tax filings and potential penalties from the FTA.   Make sure all your invoices, receipts, and bank statements are meticulously recorded and stored. The UAE's tax laws, particularly corporate tax, can be complex. Relying on outdated or inaccurate information can result in non-compliance.   

Always refer to official FTA publications and seek professional tax advice.

A few more common tax preparation pitfalls are: 

1. Missing deadlines.
2. Incorrect VAT treatment.
3. Neglecting corporate tax obligations.
4. Commingling personal and business funds.
5. Insufficient documentation.
6. Ignoring transfer pricing rules.
7. Not seeking professional advice.

‍

10. Plan Ahead for the Next Tax Season

Don't wait until the end of the year to organize your finances. Tax preparation is a year-round process. Implement a system for tracking income, expenses, and supporting documents throughout the year. Use accounting software that aligns with UAE VAT and corporate tax regulations. Regularly review your financial performance and adjust your strategy to minimize future tax liabilities.

‍

How Alaan Simplifies Tax Prep for Small Businesses

Managing tax obligations throughout the year doesn’t need to be overwhelming. With Alaan’s automated spend management platform, small businesses in the UAE can simplify financial tracking, stay compliant with VAT and corporate tax regulations, and reduce the manual workload during tax season.

Here’s how Alaan supports your small business tax preparation from day one:

• Real-time expense tracking
  Every transaction made with Alaan corporate cards is automatically logged and categorised, ensuring accurate, up-to-date financial records without manual data entry.

• Instant receipt capture and storage
  Employees can snap photos of receipts using the Alaan mobile app or Chrome extension. Receipts are matched to transactions in real-time—no more chasing paperwork or missing documentation during audits.
• Built-in VAT and corporate tax compliance
  Alaan validates receipts against UAE FTA standards, tagging VAT correctly and helping your team avoid errors in tax filings. You’ll always know what’s deductible and how much is owed.
• Export-ready financial reports
  Generate clear, FTA-compliant reports in just a few clicks—whether it’s for income, expenses, VAT returns, or year-end tax filing. Spend less time on spreadsheets and more on strategy.
• Custom spend policies and controls
  Set department-level budgets, approval workflows, and vendor restrictions to control spending and reduce compliance risks at the source.

With Alaan, your tax prep becomes a proactive, automated process—keeping your records clean, your filings accurate, and your stress levels low.

Conclusion

Preparing for tax season is about more than just submitting forms—it’s about building good habits, staying compliant, and understanding your financials throughout the year. By following structured processes and using the right tools, small businesses in the UAE can confidently meet their tax obligations while maximising deductions and minimising stress.

Get Audit-Ready the Smart Way

Alaan gives small businesses the clarity and control they need to manage expenses, stay compliant, and breeze through tax season without the last-minute scramble.

Ready to simplify your finances and stay ahead of tax deadlines?
Book a free demo with Alaan today and discover how effortless tax preparation can be.