Small Business Tax Relief Options in UAE Corporate Tax

If you're running a small business in the UAE, corporate tax may feel like a daunting new hurdle. But the government hasn’t left you in the dark. With the introduction of Small Business Relief, the UAE has created a smart way to ease your tax burden without compromising compliance.

The move is not just thoughtful; it’s strategic. Small and medium-sized enterprises (SMEs) make up 94% of UAE companies and contribute over 60% to the country’s GDP. Supporting this segment is vital for sustainable economic growth.

Small Business Relief grants a 0% corporate tax rate to eligible businesses that meet specific revenue thresholds. But this isn’t an automatic exemption—eligibility conditions, election requirements, and compliance responsibilities still apply. To benefit fully without risking penalties, you need to understand how it works.

In this blog, you’ll learn what Small Business Relief entails, who qualifies (and who doesn’t), how it affects your corporate tax filings, and which records you must maintain to stay compliant.

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What is Small Business Relief Under UAE Corporate Tax?

Small Business Relief is a key provision under Article 21 of the Federal Decree-Law No. 47 of 2022, designed to ease the tax burden on UAE-based micro and small businesses. If your business meets the criteria, this relief allows you to be treated as having no taxable income, which means 0% corporate tax liability for that period.

But to enjoy its benefits, you must elect to apply for this relief during your tax return filing for the relevant period. And you still need to register for corporate tax and file returns with the Federal Tax Authority (FTA).

Here are the most notable small business tax benefits available under Small Business Relief:

• 0% corporate tax: If your revenue stays within the prescribed threshold, you pay no corporate tax for that tax period.
• Simplified compliance: You’re not required to calculate taxable income or deal with deductions, exemptions, or interest limitations. However, you must still maintain proper financial records, such as invoices, receipts, and bank statements to prove eligibility and comply with FTA requirements.
• Cash-based accounting option: Eligible businesses can prepare financials using the cash basis of accounting, which is ideal for companies with simple bookkeeping systems.

However, opting for this relief also means giving up access to certain other tax benefits, which we’ll cover later in the blog.

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Eligibility Criteria for Small Business Relief

To benefit from Small Business Relief, your business must meet all of the following conditions. It’s not just about your revenue; residency status, group affiliations, and compliance history also matter.

1. Revenue Threshold: AED 3 Million or Less

Your total revenue must not exceed AED 3 million in any given tax period and all previous tax periods ending on or before 31 December 2026.

• This threshold applies per tax period, not a rolling average.
• If you exceed the AED 3 million limit even once, you become ineligible for relief that year and any subsequent tax periods, even if your revenue drops again later.

2. Resident Person in the UAE

You must be a resident person under the UAE Corporate Tax Law. This includes:

• Natural persons (individuals) conducting business activities in the UAE
• Juridical persons (companies) incorporated or effectively managed and controlled in the UAE
• Free zone entities (but not Qualifying Free Zone Persons)

3. Formal Election for Relief

You must actively opt-in to claim Small Business Relief when filing your corporate tax return.

• If you miss this election in your return, you cannot retroactively claim relief later.
• You must notify the FTA through the EmaraTax platform during the relevant tax period.

4. Hold a Valid TRN

Even though Small Business Relief removes your tax liability, you are still required to:

• Register for Corporate Tax
• Obtain a Tax Registration Number (TRN)
• Maintain records proving eligibility

This relief could significantly boost growth by freeing up working capital for reinvestment.

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Who is Not Eligible for Small Business Relief?

While the UAE's Small Business Relief scheme offers valuable support, it’s not available to everyone. Certain business types and structures are excluded to prevent misuse and ensure fair taxation.

1. Members of a Multinational Enterprise (MNE) Group

If your business is part of an MNE group with consolidated global revenues exceeding AED 3.15 billion, you are excluded from Small Business Relief.

• This applies even if your individual entity’s revenue is below AED 3 million.
• The group’s consolidated financials are the benchmark, not your standalone figures.

2. Qualifying Free Zone Persons (QFZP)

If your entity is a QFZP and already benefits from a 0% tax rate on qualifying income, you cannot claim small business tax benefits like Small Business Relief.

• QFZPs must meet the Corporate Tax Law's specific substance, activity, and income criteria.
• The relief is designed for businesses that are otherwise fully taxable.

3. Artificial Separation of Business Activities

If the Federal Tax Authority (FTA) determines that you have intentionally split your business into multiple entities to stay below the AED 3 million revenue threshold, you will be disqualified.

• The FTA can invoke anti-abuse rules under Article 50 of the Corporate Tax Law.
• Offenders may face backdated tax liabilities and financial penalties.

4. Businesses That Do Not File Proper Election

Even if you qualify based on revenue and status, failing to formally opt in for Small Business Relief while filing your return will make you ineligible.

• There is no retrospective application.
• If you miss the window, you lose the benefit for that tax period.

Important Note: Just being small isn’t enough, you must be compliant, registered, and transparent in your reporting to qualify.

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How Small Business Relief Actually Works

Small Business Relief simplifies your tax obligations by treating your business as having no tax liability, even if it generated profit.  

Here’s how it works in practice:

1. You Still Need to Register and File Corporate Tax Returns

Even if you're eligible for relief, registration with the Federal Tax Authority (FTA) and filing of annual returns are still mandatory.

• You’ll receive a Tax Registration Number (TRN).
• You must elect for Small Business Relief during your tax filing to activate the benefit.

2. Taxable Income Is Treated as Zero

When you elect for Small Business Relief:

• Your business is treated as having no taxable income for that period.
• You are not required to calculate taxable profits, deductions, or exempt income.
• No corporate tax is payable.

3. You Cannot Use Other Corporate Tax Provisions

By opting into Small Business Relief, you waive access to other tax planning tools. This includes:

• Tax loss carryforwards
• Interest deduction limitations
• Exempt income claims
• Transfer pricing documentation
• Group tax relief or consolidation

Your entire tax profile is simplified—but so are your options. We will discuss them in the next section.

4. Accounting Basis Can Be Simplified

Eligible businesses can use the cash basis of accounting, making it easier to manage finances without accrual-based complexities.

This reduces admin overhead, especially for sole proprietors and micro enterprises.

5. Revenue, Not Profit, Determines Eligibility

Relief eligibility is based only on revenue, not profit:

• If your total revenue exceeds AED 3 million in any tax period, you lose access to the relief.
• Low profits or losses don’t qualify you unless your revenue is below the threshold.

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Impact of Small Business Relief on Other Corporate Tax Rules

While Small Business Relief lightens your tax load, it also limits your access to several key provisions within the corporate tax framework. Here's how:

1. No Carryforward of Tax Losses

Under regular corporate tax rules, businesses can carry forward losses to offset future profits. But if you claim Small Business Relief:

• You cannot carry forward or apply tax losses for any year relief is elected.
• Losses during the relief period expire and cannot reduce tax in future years.

2. Interest Deduction Limitations Don’t Apply

Ordinarily, there's a cap on how much interest expense you can deduct. But with Small Business Relief:

• General interest deduction limitations are irrelevant because taxable income isn't calculated.
• You can’t use interest expenses to reduce any future tax obligations.

3. Exempt Income Becomes Irrelevant

Corporate tax allows exemptions on specific income (like dividends or capital gains), but:

• If you opt into relief, your entire income is treated as non-taxable.
• Claiming exemptions becomes unnecessary and unavailable.

4. No Access to Other Reliefs or Deductions

The relief excludes you from:

• Other investment-based reliefs
• Business expense deductions (salaries, rent, utilities, etc.)

Since you aren’t taxed, there’s no need or ability to claim deductions.

5. Transfer Pricing Documentation is Waived

Transfer pricing applies when dealing with related parties. But if you elect relief:

• Transfer pricing rules and documentation requirements are waived.
• This reduces compliance work for small, family-run, or closely-held businesses.

6. You Cannot Be Part of a Tax Group

Tax grouping lets multiple businesses consolidate profits and losses. However:

• Businesses claiming Small Business Relief cannot form or join a tax group.
• You’ll need to give up the relief if you want to consolidate taxes with other entities.

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Record-Keeping Requirements for Businesses Using Small Business ReliefRecord-Keeping Requirements for Businesses Using Small Business Relief

Claiming Small Business tax benefits doesn’t exempt you from maintaining proper documentation. The Federal Tax Authority (FTA) mandates that all businesses, even those under relief, keep accurate financial records for at least seven years.

Here’s what you must maintain:

• Revenue documentation: Clear records showing your business revenue stayed under AED 3 million for each applicable tax period.
• Invoices and receipts: Digitally or physically stored, with accurate dates, amounts, and tax details.
• Bank statements: For verifying business transactions and reconciling accounts.
• Contracts and agreements: Evidence for the nature of income, especially if you have multiple income sources.
• Notification of relief election: Proof that you opted for Small Business Relief during the tax return filing period.
• Any FTA correspondence: Communication with tax authorities should be stored for audit or compliance checks.

Maintaining a well-organised digital archive ensures compliance and saves time during audits.

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How Alaan Helps You Stay Compliant with Small Business Relief

Complying with Small Business Relief means more than hitting revenue thresholds. It requires clean, accurate, and timely financial records. That’s exactly what Alaan makes effortless.

We help businesses by:

1. Automated expense tracking: Every transaction made with our corporate cards is automatically recorded and categorised in real-time. This removes manual work and ensures your revenue records are always accurate and up to date.

2. Effortless receipt management: With Alaan, you don’t have to chase receipts. Simply upload them via our mobile app or chrome extension. Our platform securely stores and auto-verifies each one, making it easy to retrieve them whenever needed.

3. Instant access to financial data: You get real-time visibility into your spending. Whether you want to monitor monthly revenue or filter expenses by category, Alaan gives you clear, audit-ready insights which are essential for proving your eligibility under Small Business Relief.

4. Custom reports in a click: Generate detailed financial reports for any period in seconds. From revenue summaries to audit-ready logs, we help you stay prepared for any FTA review or compliance check.

5. Fully compliant, fully simplified: We align our platform with UAE’s regulatory standards. Alaan doesn’t just simplify expense management: it empowers your business to fully benefit from Small Business Relief, while keeping your financial records clean, compliant, and audit-ready.

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Conclusion

The UAE’s Small Business Relief represents a bold move to empower entrepreneurs and fuel innovation. For many founders, it signals a turning point—reducing time spent on tax complexities and unlocking more freedom to focus on building, experimenting, and scaling what matters most.

By staying below the AED 3 million threshold, filing your returns correctly, and maintaining clean financial records, you get valuable small business tax benefits while positioning your business for both compliance and long-term resilience. However, manual processes often get in the way.

That’s why we built Alaan to simplify tax compliance without slowing you down. From automated expense tracking to instant report generation, we give you everything you need to manage your finances with precision and confidence.

Want to experience effortless compliance and smarter spending? Book a free demo today and let Alaan do the heavy lifting.