Small Business Relief Under UAE Corporate Tax Law: 2025 Eligibility Guide

UAE Small Business Relief (SBR) — Why It Matters in 2025

The United Arab Emirates (“UAE”) witnessed a significant paradigm shift in its fiscal landscape with the enactment of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). For the first time in its history, the UAE transitioned from a predominantly tax-free jurisdiction to one requiring corporates and businesses to contribute to the federal revenue framework through corporate taxation.

While the law was promulgated in alignment with global tax transparency standards and international obligations (notably the OECD BEPS framework), policymakers were conscious of the disproportionate burden that tax compliance and reporting could impose on micro, small, and medium-sized enterprises (“SMEs”). In recognition of this, the Federal Tax Authority (“FTA”) introduced the Small Business Relief (“SBR”) mechanism through Ministerial Decision No. 73 of 2023, allowing eligible small businesses to obtain breathing space from compliance costs and the immediate impact of taxation, thereby facilitating a smoother transition into the new regime.

In this article, we will analyze the legislative basis of SBR, its eligibility requirements, its advantages and limitations, and finally illustrate its practical application through hypothetical case studies.

Small Business Relief at a Glance: Key Benefits and Limitations

Key SBR Benefits for UAE SMEs

·      No Corporate Tax: Businesses eligible under SBR pay no corporate tax for the relevant year.

·      Simplified Compliance: Reduced documentation, ability to use cash-basis accounting, no transfer pricing documentation requirements.

·      Administrative Ease: Encourages entrepreneurship by alleviating the costs of compliance and advisory at early stages.

·     Simplified Tax Return & Disclosures: Under Small Business Relief, the corporate tax return is streamlined, requiring only minimal disclosures as compared to the standard return.

Limitations and Trade-Offs

·      No Carry forward of Tax Losses or Net Interest Expenditure: Electing SBR extinguishes the ability to utilize these in future periods.

·      No Access to Other Reliefs: Exempt income provisions, deductions, and tax credits are unavailable.

·      Election Requirement: Relief must be elected each year through the tax return; omission cannot be rectified later.

SBR Eligibility: AED 3 Million Revenue Cap, Residency and Exclusions

In order to qualify for the Small Business Relief (“SBR”) regime under the UAE Corporate Tax framework, a business must satisfy the following statutory conditions:

1.  Revenue Threshold

·    The aggregate gross revenue of the business, as determined in accordance with applicable accounting standards accepted in the UAE, must not exceed AED 3,000,000 for the relevant tax period and for all preceding tax periods ending on or before 31 December 2026.

·      If at any point the revenue of the business exceeds this threshold, the entity shall cease to be eligible for SBR from that tax period onwards.

2.                Residency Status

The business must qualify as a Resident Person for Corporate Tax purposes. This includes:=

·     Juridical Persons incorporated in the UAE: Companies and other legal entities established under UAE laws, including mainland and free zone entities (other than Qualifying Free Zone Persons, who are specifically excluded).

·    Juridical Persons incorporated outside the UAE but effectively managed and controlled within the UAE: Foreign entities where the place of effective management (POEM) is in the UAE.

·      Natural Persons carrying on business activities in the UAE: Individuals engaged in commercial, industrial, professional, or other business activities that are subject to licensing or regulatory oversight within the UAE.

3.                Excluded Categories 

Even where the above conditions are met, the following entities cannot claim SBR:

·      Qualifying Free Zone Persons (QFZPs), as they already benefit from a separate preferential corporate tax regime.

·   Constituents of Multinational Enterprise (MNE) Groups that have consolidated global revenues exceeding AED 3.15 billion, in line with OECD Pillar Two standards.

Real-World Examples: SBR Case Studies for UAE SMEs

Case Study 1: A Startup Tech Consultancy

Facts: A consultancy incorporated in 2023 records revenue of AED 2.4 million with net profits of AED 900,000 in its first tax period.

Application:

• Revenue < AED 3 million ? Eligible for SBR.
• Electing SBR results in 0% tax liability despite significant profits.
• Compliance simplified: no need to compute taxable income, maintain only simplified accounts.

Legal Consideration: This represents the core policy objective - shielding startups in their formative years.

Case Study 2: A Loss-Making Retailer

Facts: A small retailer records revenue of AED 2.7 million but incurs a net loss of AED 400,000 due to high operating costs.

Application:

• Eligible for SBR but electing would preclude the retailer from carrying forward this loss to offset against future profits.
• Strategic Decision: The retailer may elect out of SBR to preserve the right to carry forward tax losses.

Legal Consideration: Illustrates that while SBR is optional, it is not universally beneficial taxpayers must assess long-term consequences.

Case Study 3: A Free Zone E-Commerce Entity

Facts: A Free Zone company (QFZP) earns AED 2.2 million from trading activity.

Application:

·       Despite revenue < AED 3 million, the entity is excluded from SBR as it is a Qualifying Free Zone Person.

·       Must rely on Free Zone preferential tax regime (0% on qualifying income, 9% on non-qualifying).

Legal Consideration: Highlights deliberate legislative intent to prevent overlap of reliefs.

Compliance & Record-Keeping

Even under SBR, businesses must:

·       Register for Corporate Tax with the FTA.

·       File a simplified return for each tax period.

·       Maintain records evidencing revenue and eligibility for at least seven years (per Article 54 of the CT Law).

Failure to maintain adequate records or incorrect election may trigger penalties, underscoring the need for careful compliance despite the relief.

SBR Compliance Checklist for UAE SMEs

Before electing Small Business Relief, businesses should walk through the following checklist:

1.                   Revenue Test

ü Is your business revenue AED 3,000,000 or less in the current tax period?

ü Has your revenue also remained ? AED 3,000,000 in all previous tax periods up to 31 December 2026?

2.                 Residency Test

ü Are you a UAE-incorporated company (mainland or free zone, excluding Qualifying Free Zone Persons)?

ü Or are you a foreign-incorporated entity effectively managed and controlled from within the UAE?

ü Or are you a natural person carrying on licensed business activities in the UAE?

3.                 Exclusion Test

ü You are not a Qualifying Free Zone Person (QFZP) claiming preferential Free Zone tax regime.

ü You are not part of a Multinational Enterprise Group with consolidated global revenue exceeding AED 3.15 billion.

4.                 Compliance Requirements

ü Have you registered for Corporate Tax with the Federal Tax Authority (FTA)?

ü Are you prepared to file a simplified tax return (even if no tax is payable)?

ü Can you maintain revenue and accounting records for at least 7 years to substantiate your eligibility?

Conclusion: Use SBR Now—Prepare for 2026 and Beyond

The Small Business Relief regime is a carefully calibrated policy instrument embedded within the UAE Corporate Tax framework to balance the twin objectives of tax revenue mobilization and entrepreneurship promotion. By temporarily shielding small enterprises from the tax net, the FTA has provided a vital compliance cushion and facilitated a gradual acclimatization to the new corporate tax era.

However, as the case studies illustrate, SBR is not a “one-size-fits-all” solution. Businesses must evaluate the legal and financial implications, particularly regarding loss carry-forwards and future tax planning, before electing relief. With its expiry date of 31 December 2026, SBR should be viewed as both a short-term reprieve and an opportunity for SMEs to strengthen financial discipline ahead of full integration into the UAE tax framework.

How Water & Shark Helps SMEs Claim and Optimise SBR

At Water & Shark UAE, we recognize that while the Small Business Relief regime appears straightforward, its practical application requires careful legal and tax consideration. The decision to elect for SBR can have lasting implications on future tax positions, loss utilization, and overall structuring. Our team provides comprehensive support tailored to your business needs, including:

·      Eligibility Assessment: We evaluate whether your business meets the SBR conditions, considering revenue recognition principles, residency status, and potential exclusions.

·      Strategic Tax Planning: We advise on whether electing SBR is beneficial considering your future growth, anticipated profitability, and potential deductions (such as losses or interest expenses).

·      Corporate Tax Registration & Filing: We manage the entire registration process with the FTA and assist in preparing and filing the simplified tax return under SBR.

·      Compliance & Record-Keeping: We help establish compliant accounting systems, ensuring your records are maintained in accordance with the 7-year requirement and are ready for FTA audit, if required.

·      Advisory on Transition Beyond 2026: Since SBR is only available until 31 December 2026, we support businesses in preparing for full corporate tax compliance post-relief period.

With our deep expertise in UAE Corporate Tax, international structuring, and SME advisory, Water & Shark ensures that small businesses can maximize the benefits of SBR while avoiding unintended consequences.