With the introduction of Corporate Tax in the UAE, the government has also rolled out a Small Business Relief program to keep entrepreneurship thriving.
In simple terms, if your new business in the UAE qualifies as “small” under this relief, you won’t owe any UAE corporate tax for that period – allowing you to reinvest every dirham back into your company’s growth.
We (Corporate Business Services (CBS)) are here to break down what this Small Business Relief is all about . Let’s explore how it works, who’s eligible, and how it benefits you as an entrepreneur.
(Plus, we’ll touch on why getting your business license in Dubai and staying compliant are key parts of the journey.)
Understanding Corporate Tax in the UAE
For decades, the UAE was famed for its zero corporate taxes – a big draw for businesses. However, times are changing.
As of 2023, the UAE introduced a federal corporate tax on business profits for the first time. The standard Corporate Tax in the UAE is 9% on taxable profits above AED 375,000, while profits below AED 375,000 are taxed at 0%.
This essentially gives smaller businesses a breather, as only earnings beyond that threshold face tax.
For example: If your company earned AED 400,000 in profit, the first AED 375k is at 0% tax, and only the remaining AED 25k would be taxed at 9%. Not too bad, right?
The UAE’s aim is to meet international standards without stifling small businesses. As a result, alongside this new tax, they introduced something special for emerging ventures – Small Business Relief.
What is the Small Business Relief?
Small Business Relief is essentially a tax break for qualifying small businesses under the new UAE corporate tax system.
If your business meets the criteria, the Federal Tax Authority (FTA) will treat you as if you had no taxable profit for the period, meaning you owe 0% corporate tax for that year.
It’s like getting an exemption card for being small (but mighty!).
Here are the key eligibility criteria for Small Business Relief in the UAE:
- Annual Revenue ≤ AED 3 Million: Your company’s revenue must not exceed AED 3,000,000 during the tax year (and the same cap applies to all prior periods of your business).
In other words, as long as you’re making about AED 3M or less in yearly revenue (around USD 820k), you can qualify. If you go over this threshold – now or in the past – the relief no longer applies.
(For instance, if you crossed AED 3M revenue last year, you can’t claim the relief this year.)
- UAE Residency & License: The relief is available to UAE-resident businesses, whether you’re a UAE-formed company, a foreign company effectively managed from the UAE, or even an individual (solo entrepreneur) with a business license in Dubai or elsewhere in the UAE.
Essentially, you need to be conducting business under a proper UAE commercial license to be subject to corporate tax in the first place – which is why securing your business license in Dubai is one of the first steps for any new venture.
(Don’t worry, CBS can assist you in obtaining the right license and setup!)
- Not a Large Multinational: This relief is designed for local startups and SMEs, not giant corporations.
If your business is part of a multinational group with global revenues above AED 3.15 billion, you won’t qualify as “small” for this purpose.
(Chances are, if you’re just starting up or running an SME, this isn’t a concern!)
- Not a Free Zone Company on 0% Tax: UAE free zone companies already enjoy special tax privileges.
If you’re a Qualifying Free Zone Person, you can’t elect for this particular relief – but the good news is that many free zone businesses already have a 0% corporate tax on their qualifying income by default.
The Small Business Relief mainly targets mainland businesses and others that would otherwise be taxed.
Time-bound benefit: It’s important to note that the AED 3M revenue threshold is currently set to apply only to tax periods up to the end of 2026.
So this is a temporary relief for the initial years of the corporate tax regime. The government may revisit this rule after 2026. In the meantime, it’s a golden window for new businesses to grow without tax pressure.
How Does Small Business Relief in UAE Benefit You?
Starting a business is tough enough – and having a tax bill from day one can make it tougher.
The Small Business Relief in UAE ensures that you won’t be immediately weighed down by taxes as you get your business off the ground.
Here are a few ways this relief can help your startup or SME thrive:
- Immediate Tax Savings: If you qualify, you keep 100% of your profits, because you pay 0% corporate tax for the period.
This means more cash on hand to cover expenses, whether it’s hiring your next employee, marketing your services, or improving your product.
The policy’s intention is to let small enterprises “flourish without the burden of taxation”, fostering entrepreneurship and growth.
- Reinvest in Growth: Money not paid in tax is money you can reinvest. Think of it as an interest-free boost from the government.
For example, a company with AED 1 million in profits would normally face about AED 90k in tax (if above the basic threshold). Under the relief, that AED 90k stays in your business.
You could use it to open a new branch, develop a new product line, or simply strengthen your cash flow buffer. The UAE authorities want you to use these savings to make your business stronger.
- Simplified Compliance: The relief isn’t just about not paying tax – it also makes life easier for small businesses administratively.
Financial reporting can be simpler. In fact, businesses taking the relief are allowed to use cash-basis accounting for their books if they prefer.
This means you can recognize income and expenses based on actual cash flow, which is often easier for small businesses to manage, rather than complex accrual accounting.
Additionally, if you elect for the relief, you’re exempt from certain reporting requirements – for instance, no need to prepare transfer pricing documentation for that period (though you must still transact with any related parties at fair market prices).
All of this reduces the compliance headache, so you can focus more on running your business and less on paperwork.
- Psychological Breather: Beyond the numbers, there’s a psychological benefit. Knowing that the UAE supports small businesses through this tax break gives many entrepreneurs peace of mind.
It’s one less thing to worry about in the critical early stage. We’ve seen clients feel more confident investing in growth knowing they won’t be hit with taxes if they’re still small. It’s a signal that Dubai and the UAE are still very much pro-business and want you to succeed.
How to Claim the Small Business Relief
Now, you might be wondering: “Great, I qualify – so how do I get this 0% tax relief officially?” The relief isn’t automatic; you have to claim (elect) it properly.
Here’s how it works:
1. Register for Corporate Tax:
First, if your business needs to file corporate tax (which most do if you have a UAE business license), you’ll register with the Federal Tax Authority (FTA) and get a Tax Registration Number.
Even if you expect to owe no tax, registration ensures you’re in the system. (Remember, all businesses under a UAE commercial license fall under the corporate tax regime by default, so it’s best to be registered and compliant.)
2. Elect the Relief on Your Tax Return:
Each financial year, you’ll file a corporate tax return to the FTA. When filing, you must notify the FTA that you’re electing the Small Business Relief for that tax period.
In practice, this is usually a checkbox or section in the tax return form where you declare that your revenue was within the limit and you opt for the relief.
By doing so, you are telling the tax authority to apply the 0% tax relief for that year. If all conditions are met, they will treat your taxable income as zero and no tax will be due.
3. Maintain Records:
Even though you won’t pay tax for that year, you should still keep proper financial records to prove your eligibility.
The FTA has the right to request information to verify your revenue and conditions. Good bookkeeping and accurate revenue tracking are important.
This is where working with a professional accountant or consultant can help – we ensure your numbers are in order in case of any checks.
4. Be Honest – Don’t Abuse the System:
The Small Business Relief is generous, but there are safeguards against abusing it. For instance, you cannot artificially split one business into multiple entities just to keep each under AED 3M revenue and claim the relief separately for each.
If a business is essentially one economic unit that really earns more than AED 3M combined, the FTA’s General Anti-Abuse Rule (GAAR) can come into play. They can deny the relief and impose taxes (or penalties) if they find someone tried to game the system.
The takeaway? Use the relief as it’s intended – for genuinely small operations – and consult advisors if you’re unsure about any arrangement.
5. Know the Trade-offs:
When you elect the Small Business Relief, you opt out of certain other tax provisions for that year.
For example, you cannot carry forward any tax losses incurred in a relief year to future years (because, officially, you had “no taxable income” that year).
Similarly, you can’t claim some deductions or credits that might apply to normal taxpayers. This usually isn’t a big drawback for very small businesses, but it’s worth being aware.
Essentially, you’re saying “I won’t pay tax this year, and in exchange I won’t use losses or special deductions from this year in the future.”
Once your business grows beyond the relief, any new losses or deductions from that point on can be used normally.
Most importantly, stay informed. Tax laws can evolve, and while the Small Business Relief is in effect now, you’ll want to keep an eye on any changes around 2026.
At CBS, we routinely update our clients on regulatory changes, so they’re never caught off guard.
Conclusion: Thrive in Dubai with the Right Support
Small Business Relief is more than just a tax technicality, it’s a welcome lifeline for startups and small businesses in the UAE.
By giving you a 0% corporate tax rate in your early years, the government is essentially saying “We believe in your potential, go ahead and build your business!”
This initiative fosters a healthy, entrepreneurial environment where new businesses can bloom.
That said, succeeding in Dubai’s dynamic market takes more than just tax advantages. It requires smart planning, compliance, and local insight.
That’s where having the right partner matters. As expert business setup consultants in Dubai, we at CBS have helped countless entrepreneurs navigate company formation, licensing, and the corporate tax landscape.
We’re here to guide you through each step, ensuring you maximize reliefs like the Small Business Relief, stay compliant, and make savvy decisions for your company’s future.
Ready to turn this tax break into a springboard for your success?
Let’s talk! Whether you’re just brainstorming a business idea or already in operation, reach out to us for personalized, professional advice.
With the right support and knowledge, you’ll not only save on taxes but also set your business up for long-term prosperity in Dubai’s business-friendly climate.
