UAE Small Business Relief: The AED 3 Million Threshold, How to Elect It, and What It Does Not Cover

The UAE Corporate Tax rate is 9%. For most UAE SMEs, the first question after registering for CT is a simple one: does my business qualify for Small Business Relief?

Small Business Relief is the provision in UAE Corporate Tax law that allows an eligible business to be treated as having no taxable income for a given tax period — regardless of the profit it actually made. A business that successfully elects it pays no CT for that period. The effective rate is zero.

The problem is not finding out the relief exists. Most business owners hear about it quickly enough. The problems tend to be three: not knowing whether they actually qualify, not making the election in time, and not understanding what the relief does not cover. This guide addresses all three.

SBR sunset notice. The Small Business Relief framework under Ministerial Decision No. 73 of 2023 applies only to tax periods ending on or before 31 December 2026. If your financial year ends on 31 December, your current period (January to December 2026) is the last one covered by these rules. A business whose financial year runs past 31 December 2026 (for example, a period ending 31 March 2027) falls outside the scope of MD 73/2023 for that period. BPOAS will update this article if a new Ministerial Decision extends or modifies SBR beyond 2026.

The Legal Framework

Small Business Relief is established in Article 21 of Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law). The detailed conditions — including the revenue threshold — are set out in Ministerial Decision No. 73 of 2023.

The current SBR framework applies to tax periods beginning on or after 1 June 2023 and ending on or before 31 December 2026. Businesses whose financial year extends beyond 31 December 2026 should not assume that the same rules continue to apply without checking whether a new or revised Ministerial Decision has been issued.

Source: Federal Decree-Law No. 47 of 2022, Article 21; Ministerial Decision No. 73 of 2023.

How the AED 3 Million Threshold Works

A resident taxable person can elect Small Business Relief for a tax period if its revenue for that period does not exceed AED 3,000,000.

Revenue here means accounting revenue — the turnover figure in the business’s financial statements for the period. It is not taxable income, not gross profit, not net profit. A business with AED 2.9 million in sales and AED 2.4 million in costs still has AED 2.9 million in revenue for this purpose, and it qualifies.

The AED 3 million threshold is applied independently to each tax period. A business that exceeded AED 3 million in a prior period is not automatically disqualified from electing SBR in a subsequent period where revenue has fallen back below the threshold. Each period is assessed on its own revenue figure.

One practical consequence: businesses near the threshold need to monitor revenue actively during the year, not just at year-end. A business that enters the fourth quarter at AED 2.7 million in revenue and takes on a significant new contract may find itself above AED 3 million by the time the period closes. Once revenue exceeds AED 3 million, the election is not available for that period — and the entire profit for the year is subject to CT at the standard rate.

Source: Ministerial Decision No. 73 of 2023, Article 2.

What Small Business Relief Does — and Does Not Do

What it does

A business that makes a valid SBR election for a tax period is treated as having no taxable income for that period. The CT payable is zero, regardless of the actual profit earned. This is not a deduction, exemption, or reduced rate — it is a deemed nil taxable income position.

For a profitable small business, the saving can be significant. A business with AED 2.8 million in revenue and AED 800,000 in net taxable income would ordinarily pay CT of approximately AED 38,250 (AED 800,000 minus the AED 375,000 0% threshold = AED 425,000 × 9%). Under SBR, CT payable is zero.

What it does not do

Small Business Relief does not exempt a business from any of the following:

CT registration. Every business that meets the registration threshold must register for Corporate Tax with the FTA — including businesses that intend to elect SBR. SBR is a relief claimed inside the CT system, not a route around it.

CT return filing. SBR must be elected in the CT return for the relevant period. If you do not file a CT return, you cannot make the election. Late returns attract FTA penalties regardless of whether CT is ultimately payable.

VAT, payroll, and other compliance obligations. SBR applies only to Corporate Tax. It has no effect on VAT obligations, WPS compliance, payroll processing, or any other UAE regulatory requirement. A business under SBR still needs to file VAT returns, process payroll correctly, and meet all other applicable deadlines.

Record retention. Under SBR, the standard CT record retention requirement of seven years still applies. SBR does not reduce or remove the obligation to maintain proper books and records.

Who Cannot Elect Small Business Relief

Not every business below AED 3 million in revenue is eligible. There are specific categories of businesses that cannot elect SBR regardless of their revenue level.

Members of a Multinational Enterprise group

A business that is part of a Multinational Enterprise group — defined in the CT Law by reference to the Country-by-Country Reporting threshold — cannot elect Small Business Relief. The restriction applies to any member of such a group, irrespective of the UAE entity’s own revenue.

Businesses that have made an artificial arrangement to meet the threshold

The CT Law contains anti-avoidance provisions directed at arrangements designed to fragment a business artificially in order to bring revenue below the AED 3 million threshold. Where the FTA determines that a business structure has been manipulated to qualify for SBR, the arrangement can be disregarded and the relief denied. Genuine operational reasons for structuring a business across multiple entities are not affected — but structures created primarily or specifically to access SBR are at risk.

Qualifying Free Zone Persons

A Qualifying Free Zone Person operates under the QFZP regime, which already provides a 0% rate on qualifying income. SBR is not available to QFZPs. Businesses that are free zone entities but do not hold QFZP status — because they do not meet the qualifying activities and other conditions — are in a different position and should assess eligibility carefully.

Source: Ministerial Decision No. 73 of 2023, Articles 3–4.

The Election: How and When to Make It

Small Business Relief is not automatic. A business that meets the eligibility conditions must make an election for each tax period in which it wants the relief to apply.

The election is made in the Corporate Tax return for the relevant period. It is not a separate application, a prior approval process, or something filed independently of the return. It is a box ticked — or not ticked — in the CT return itself.

The consequence is that the deadline for making the election is the CT return filing deadline for that period. For most businesses, the CT return is due nine months after the end of the financial year. A business with a December year-end has until September of the following year. A business with a March year-end has until December.

Missing the return deadline — or filing late and failing to tick the SBR election — means the relief is not claimed for that period. The FTA does not have a mechanism for retroactively accepting an SBR election after the return has been filed and the period has closed. The only path at that point is a voluntary disclosure or amended return, which carries its own conditions and timeline.

This is the most common mistake with SBR. The business qualified. No one made the election.

Planning Considerations: When Not to Elect

Electing Small Business Relief is not always the right decision, even for businesses that clearly qualify.

When the business has tax losses

When a business elects SBR, the tax period in question is treated as having no taxable income. This means that losses incurred in an SBR period cannot be carried forward and used against future taxable income. If a business has made genuine losses — perhaps in a start-up year, or a year with significant capital investment — and those losses would otherwise reduce its tax in profitable future years, electing SBR eliminates the carry-forward value of those losses.

For a business that expects to be profitable and above the AED 3 million threshold within two or three years, carrying forward losses may be worth significantly more than the nil CT payable in the current period. The right answer depends on the numbers and the trajectory of the business.

When the business is near the threshold and growing

A business that is consistently growing and expects to cross AED 3 million in the next one or two periods should consider the position carefully. Once revenue exceeds AED 3 million, the full 9% rate applies to all taxable income above AED 375,000. The effective change from one period to the next can be abrupt if planning has assumed continued SBR eligibility.

Businesses with related party transactions — even at the smaller end — should not assume that SBR removes the need to price those transactions at arm’s length. Transfer pricing obligations apply to all taxable persons with related party transactions, regardless of whether SBR has been elected. An SBR election does not insulate a business from an FTA inquiry into related party transaction pricing.

Common Misunderstandings

“We are below AED 3 million so we don’t need to register for CT.” SBR eligibility and CT registration are separate obligations. The CT registration threshold is lower than the SBR threshold, and registration is required regardless of whether the business will claim SBR. An unregistered business cannot file a return and cannot make the election.

“We claimed SBR last year so it automatically applies this year.” SBR is elected period by period. There is no rollover, no standing election, and no automatic continuation. Each tax period requires a fresh election in that period’s CT return.

“Our revenue is AED 2.9 million but our profit is only AED 100,000, so the CT saving is small — SBR is not worth the trouble.” Whether SBR saves a significant amount in CT depends on the taxable income, not just revenue. But the filing and election process is the same regardless. A business that qualifies should elect SBR for every qualifying period, even if the CT amount saved is modest. A year where CT is AED 2,250 is not a reason to skip the election — it is still AED 2,250 kept in the business.

“SBR means we don’t need to keep proper accounts.” The FTA can query any business’s return or conduct an audit regardless of SBR status. Proper books, supporting documents, and a revenue figure that supports the SBR election all need to be in place. An SBR election that cannot be supported by the underlying accounting is a problem.

“The AED 3 million is assessed on the group, so each subsidiary has its own threshold.” Where multiple entities are part of a CT Group under the UAE CT Law, the group elects SBR collectively — the group’s aggregate revenue must not exceed AED 3 million. Separate entities that are genuinely independent are assessed individually. The distinction matters for businesses with related entities operating in the same group.

Prepared by BPOAS. This article provides general guidance and does not constitute specific tax advice. Businesses should seek advice from a qualified UAE tax professional on their individual circumstances.