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United Arab Emirates (UAE) has introduced Corporate Tax (CT) law which is applicable on every juridical person established or operating in UAE and every natural person (individuals) conducting business or business activity in UAE. The Corporate Tax is governed by Federal Decree-Law No. 47 of 2022 and is applicable on every taxable person mentioned earlier from any financial year that starts on or after 1st June 2023.

The introduction of CT in UAE is a huge step towards strengthening its position as a leading global hub for business and investment. This step also reaffirms UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.

Applicable rates

As per the Federal decree law, the CT will be charged on the annual taxable income of a taxable person at the rate specified below:

1.     0%, for taxable income up to AED 375,000;

2.     9%, for taxable income exceeding AED 375,000; and

3.     15% for large multinationals that meet specific criteria set with reference to Pillar 2 of the OECD Base Erosion and Profit Shifting (BEPS) vide Federal Decree Law 60 of 2023.

As read above that CT is not payable on taxable income upto AED 3,75,000 in a year and for income exceeding AED 3,75,000, the CT rate is merely 9%. This minimal tax rate of 9% and no tax on profit upto AED 3,75,000 reaffirm Government intention of providing a business-friendly environment where all businesses especially the small ones can operate without being concerned about the tax and compliances as may be applicable to large multinationals.

What is Small Business Relief?

In addition to minimal tax rates and AED 3,75,000 threshold exemption, a number of other reliefs are also provided to small businesses to encourage investments, entrepreneurship, and start-ups across UAE. One of such major reliefs is Small Business Relief which is intended to support small or micro businesses by reducing their Corporate Tax burden and compliance costs. This relief is governed by Article 21 of Federal Tax law read with Ministerial Decision 73 of 2023.

The law states that a resident (either a natural person or juridical person) taxable person may elect to Small Business relief if it earns revenue equal to or less than AED 3 million in a tax period and all previous tax periods that end on or before 31st December 2026. Election for Small Business relief would mean being treated as heaving no taxable income in that period and will also be not required to file Full Corporate tax return.

It is important to note that the threshold of AED 3 million applies not only to current tax period but previous tax periods as well. Hence, revenue earned in any period that ends before CT came into effect i.e. 1st June 2023 would not be considered to assess the eligibility for Small Business Relief.

Let’s understand this with an example – Ms. X operates a Business in Dubai and she is a Resident Person for Corporate Tax purposes. In her most recent Tax Period which ends on 31 December 2025, Ms X derived Revenue of AED 2,200,000 (AED 2.2 million). In the previous Tax Period ending 31 December 2024, she had Revenue of AED 4,300,000 (AED 4.3 million). Ms X is not eligible to benefit from Small Business Relief for the Tax Period ending 31 December 2025 as her Revenue has exceeded the threshold of AED 3,000,000 (AED 3 million) in previous Tax Period.

What are some other important considerations?

How should an eligible taxable person elect for Small Business Relief? Well registration under CT is mandatory for every juridical resident person and a natural person deriving revenue of more than AED 1 million in a year. Once you register under CT and obtain the Tax Registration Number (TRN), then you must make an election in your Tax Return in order to benefit from the relief. This election must be made for each Tax Period for which a Tax Return is filed.

Impact of the Small Business Relief (SBR) on other Corporate Tax rules:

1.      Eligible Taxable Persons that elect for Small Business Relief are not required to maintain transfer pricing documentations.

2.      Benefit of setting of or carry forward of Tax loss is not available under Small Business Relief.

3.      No set off allowed of any previous tax periods tax loss or net interest deduction (Article 30 and 31 of Federal Decree Law 47 of 2022) in the year in which Small Business Relief is elected.

4.      Exempt income such as Dividend from resident juridical person is to be included while calculating the Total Revenue for SBR threshold.

5.      All businesses electing for Small Business Relief are also required to maintain records and documentation that support their claim of being eligible for the relief.

6.      Small Business Relief will not be available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups) as defined in Cabinet Decision No. 44 of 2020 on Organising Reports Submitted by Multinational Companies.

(MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion)