0% corporate tax in the UAE: who can benefit from the tax break for small and medium-sized businesses?

Small businesses in the UAE can benefit from additional tax relief through the Small Business Relief regime. However, it is important to understand that a small turnover alone does not automatically mean that a company is eligible for relief.

Small Business Relief was introduced in the UAE to support startups and small businesses and reduce not only the tax burden but also the administrative burden for them. Subject to compliance with the requirements, the regime allows a taxpayer to be treated as if he had not received taxable income for the relevant tax period.

After the regime is extended, this opportunity remains relevant for the relevant tax periods until December 31, 2029.

Who can benefit from Small Business Relief?

First of all, we are talking about resident corporate taxpayers in the UAE - both individuals carrying out business activities and legal entities. One of the main conditions is that income should not exceed AED 3 million in the relevant tax period and previous tax periods to which this criterion applies.

For example, if your business generated AED 2 million in revenue this year, this does not mean that you should simply apply and receive the relief. You should also look at previous tax periods. If in one of them the income exceeded the established threshold, the right to Small Business Relief may be lost. That is why it is necessary to assess not only the current turnover, but also the entire history of income within the relevant periods.

This is important for an entrepreneur not only because of the potential reduction in the tax burden. Small Business Relief also simplifies the fulfillment of corporate tax requirements.

If the regime is chosen, the company can take advantage of a simplified approach to tax reporting and does not have to calculate taxable income in the same way as a taxpayer who does not use the relief.

That is, for a small business, this can mean less administrative burden and simpler tax administration.

It is worth noting that Small Business Relief is not available to Qualifying Free Zone Persons. The regime also does not apply to companies that are members of certain international groups with consolidated revenues of more than AED 3.15 billion.

Therefore, the statement “I have a business up to AED 3 million - therefore, I do not pay corporate tax” is incorrect. First, you need to determine what your status is, your company structure and whether you meet all the criteria for the regime.

What to do if your business is approaching AED 3 million? This is especially important for an entrepreneur. If the company’s turnover is gradually approaching the established limit, it is better to carry out tax planning before it is exceeded, rather than after.

Also, you should not try to artificially divide one business between several structures just to stay below the limit. The UAE Ministry of Finance has separately provided rules for artificial division of a business: if the Federal Tax Service establishes that the business was artificially divided to obtain a tax advantage, anti-abuse rules may apply.

What does this mean for a business owner in the UAE?

In short, Small Business Relief may be of particular interest to entrepreneurs who:

— have a small or medium-sized company in the UAE;
— are launching a startup;
— are working as a sole proprietor;
— have a turnover of up to AED 3 million;
— are planning to scale their business;
— want to optimize their tax burden in advance.

But the key question is not simply “is my turnover less than AED 3 million?” but “does my specific structure meet all the conditions of Small Business Relief?”.

This is where tax risks can arise, especially if the business has multiple companies, operates in a Free Zone, is affiliated with an international group or receives income from different jurisdictions.

Therefore, before starting a company, scaling up or changing its corporate structure, it is worth conducting an individual tax analysis, and not just focusing on general rules.

The Antwort Law team helps entrepreneurs analyze the tax structure of a business in the UAE, determine the possibility of applying Small Business Relief and assess the tax consequences of different business models.

If you have a business in the UAE or are planning to open one, contact Antwort Law for a consultation. We will analyze your structure, income and status and help you determine what tax options are available in your situation.

Diana Gulevskaya

Head of Office in UAE
Antwort Law