Small businesses in the UAE have more time to benefit from corporate tax relief. The UAE Ministry of Finance (“MoF”) has extended the Small Business Relief (“SBR”) regime until 31 December 2029, giving eligible businesses an additional three years to claim relief from corporate tax.
The extension provides greater certainty for small businesses managing their tax obligations. However, SBR is not an automatic exemption from corporate tax compliance. Businesses must still meet the eligibility conditions, make an active election and consider the implications of claiming the relief.
WHAT IS SMALL BUSINESS RELIEF?
- SBR allows certain eligible resident taxable persons to elect to be treated as having no taxable income for a relevant tax period.
- Under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Federal Decree”), the relief is available to businesses whose revenue does not exceed the prescribed threshold in the relevant tax period and the preceding tax periods.
- The MoF has prescribed the revenue threshold at AED 3 million per tax period under Ministerial Decision No. 73 of 2023. In simple terms, qualifying small businesses with revenue of up to AED 3 million may be able to claim SBR and reduce their corporate tax liability to nil for the relevant period.
THE BIG CHANGE: THREE MORE YEARS
- SBR was initially available for tax periods beginning on or after 1 June 2023 and ending on or before 31 December 2026.
- That deadline has now been extended. Through Ministerial Decision No. 131 of 2026, the MoF has extended the availability of SBR by three years, allowing eligible businesses to claim the relief for tax periods ending on or before 31 December 2029.
- For small businesses, this means more time to benefit from the regime and greater flexibility in planning their corporate tax position.
WHO CAN CLAIM SBR?
A business may claim SBR if it satisfies the applicable conditions, including the revenue threshold. However, crossing the AED 3 million threshold can have a significant consequence. A business that exceeds the prescribed revenue threshold in a relevant or preceding tax period will not be eligible to claim SBR. Businesses should therefore monitor their revenue on an ongoing basis rather than assessing eligibility only at the time of filing their tax return.
NOT EVERY SMALL BUSINESS QUALIFIES
The relief is subject to important exclusions.
- Qualifying Free Zone Persons (“QFZPs”) cannot claim SBR. Free Zone businesses that satisfy the applicable conditions are instead subject to the separate corporate tax framework applicable to QFZPs, including the 0% corporate tax rate on qualifying income.
- A constituent company in a multinational enterprise group cannot claim SBR. The relief is intended for small, standalone businesses rather than companies forming part of a much larger economic group with significant resources and international operations.
Businesses should therefore consider not only their own revenue, but also their Free Zone status and group structure when determining whether the relief is available.
SBR REDUCES THE TAX BURDEN; NOT THE COMPLIANCE BURDEN
- One common misconception is that claiming SBR removes a business from the UAE’s corporate tax compliance framework. Businesses claiming SBR must continue to comply with applicable requirements, including corporate tax registration, tax return filing and maintenance of appropriate financial records.
- SBR must also be actively elected. It does not apply automatically merely because a business satisfies the revenue threshold.
THE TRADEOFF
Before claiming SBR, businesses should consider the longer-term tax consequences. A business claiming SBR cannot carry forward tax losses or net interest expenditure incurred during the periods for which the relief is claimed. This is because businesses claiming SBR are treated as having no taxable income for those periods and, consequently, no tax loss or net interest expenditure is available to be carried forward from an SBR period. This may be particularly relevant to businesses that currently have losses but expect to become taxable in future periods. Accordingly, claiming SBR may reduce the immediate tax burden, but businesses should consider whether doing so could affect their ability to utilise certain tax attributes in the future.
Debts do not vanish on completion. In a share sale, they stay where they are. In an asset sale, the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022) treats the sale of a business as a special transaction with its own creditor protections, so a buyer can still be chased for what it thought it left behind.
- Personal guarantees given to banks and landlords do not end when the sale does. Only the bank or landlord can release them, and that takes time.
BUSINESSES CANNOT ARTIFICALLY SPLIT THEIR ACTIVITIES
The relief is also not intended to facilitate artificial business structuring. If the Federal Tax Authority determines that a taxable person has artificially separated its business or business activity and that the revenue from the entire business or activity exceeds the prescribed threshold, claiming SBR may be treated as an arrangement intended to obtain a tax advantage under the Federal Decree.
Businesses should therefore ensure that any restructuring or separation of activities has genuine commercial substance and is not undertaken merely to remain within the SBR threshold.
PRACTICAL TAKEAWAYS
The extension to 2029 gives eligible businesses more time to benefit from SBR, but it also makes ongoing eligibility monitoring important. Businesses should:
- monitor revenue against the AED 3 million threshold;
- review their group and Free Zone status;
- ensure corporate tax registration and filing obligations continue to be met;
- assess the impact of SBR on tax losses and net interest expenditure; and
- avoid arrangements that could be viewed as artificially separating business activities to access the relief.
Authors: Shantanu Mukherjee, Maitreyi Ramdas
