A trader I have known for three years sat opposite me in Ras Al Khaimah last week and said, "Haseeb, we crossed AED 2.4 million this year. Do I pay 9 percent on everything now?"
He does not. His profit sits well inside the 0 percent band, and if he handles one election correctly he also skips most of the paperwork.
Most founders have heard of corporate tax and of Small Business Relief, but few can explain how the two fit together. This is the version I gave him over coffee.
The basics in two lines
UAE corporate tax applies to financial years starting on or after 1 June 2023. Under Cabinet Decision No. 116 of 2022, taxable income up to AED 375,000 is taxed at 0 percent and anything above that at 9 percent. Note the word taxable. It is profit after deductions, not revenue.
What Small Business Relief actually does
Ministerial Decision No. 73 of 2023 created the relief. If your business is a UAE resident and its revenue is AED 3 million or less in the current and every previous tax period, you can elect to be treated as having no taxable income for that period. You file a simplified return and skip the detailed computation.
On 7 August 2026 the Ministry of Finance announced Ministerial Decision No. 131 of 2026, extending the relief from tax periods ending on or before 31 December 2026 to those ending on or before 31 December 2029. The threshold did not change. The Ministry said the decision supports small businesses, start-ups and the UAE's position as a leading investment destination.
Three more years. Think about what that means for a company you are forming now.
A worked example: the AED 2.4 million trader
Take my client's trading company. Revenue AED 2.4 million, costs AED 2.1 million, profit AED 300,000. Revenue is under AED 3 million, so he is eligible. He elects the relief in his return and files the simplified version. No taxable income, no tax, far less paperwork.
Now imagine next year he grows to AED 3.3 million in revenue with AED 450,000 in profit. The relief is gone for that period, and because the test looks at all previous periods, for future periods too. He files a full return. The first AED 375,000 of taxable income is at 0 percent and the remaining AED 75,000 at 9 percent, which is AED 6,750. Founders who understand this arithmetic early make calmer decisions about growth.
You must still register and file
The relief does not switch off your obligations.
Under FTA Decision No. 3 of 2024, a company incorporated on or after 1 March 2024, including in a free zone, must register for corporate tax within three months of incorporation. The penalty for missing that window is AED 10,000.
Returns are due within nine months of the end of the tax period, so companies with a year ending 31 December 2025 had to file and pay by 30 September 2026. In a notice dated 3 August 2026 the Federal Tax Authority stated that claiming the relief does not remove the obligation to file. The election is made inside the return for each tax period, so you choose every year, not once.
Records for seven years
The FTA requires taxable persons to keep complete records for at least seven years after the end of each tax period. For a relief claimant that means the documents proving your revenue: sales ledgers, invoices, bank statements. I would urge you to keep a one-page revenue summary in the same folder as each return. If the FTA asks why you qualified, the answer should take minutes.
What the relief does not cover
Qualifying Free Zone Persons cannot elect Small Business Relief. If your free zone company relies on the 0 percent rate on qualifying income, that is a separate regime with its own conditions, and you cannot combine the two. Members of multinational groups with consolidated revenue above AED 3.15 billion are also excluded.
VAT is a different tax altogether. The 5 percent VAT registration threshold is AED 375,000 in taxable supplies over twelve months, with voluntary registration from AED 187,500. A business relieved from corporate tax can still have to register, charge and file VAT. The two systems run side by side with separate deadlines.
Common mistakes I see
Founders assume the relief means no registration. It does not. They assume it is automatic. It is an election. They count revenue net of costs. The test is gross revenue. They forget it includes every previous period, so one strong year ends eligibility for good. And some split one business into two licences to stay under the threshold, which the law can treat as artificial separation.
Why now
If you are forming a company in the UAE in late 2026, you have a clear runway. Register within three months of your licence. Keep clean books from the first invoice. Elect the relief in each return while your revenue allows. That is three years of simplified compliance in which to build.
One honest caution
Electing the relief has a cost. Any tax loss or disallowed net interest expense arising in a relief year cannot be carried forward. A start-up expecting losses in year one and profits in year two may be better off not electing, so the loss can offset future income. Run the numbers before ticking the box.
Your next step
Check your incorporation date and count three months. Then ask your tax question below. I will answer the most common ones in a future post on how free zone qualifying income works.
This article is general information, not legal, tax or investment advice.
Comments