Corporate Tax Small Business Relief and FTA Clarifications 2025
Corporate tax is now fully active in the UAE. Small Business Relief gives eligible businesses a simplified compliance path, but many owners misunderstand the rules. Misapplication of relief creates audit risks, penalties, and compliance failures.
This guide breaks down eligibility, risks, required documentation, and common mistakes business owners must avoid.
Understanding Small Business Relief
What is Small Business Relief?
Small Business Relief is a provision in UAE Federal Decree-Law No. 47 of 2022 that allows eligible businesses with revenue below a specified threshold to benefit from simplified tax treatment:
Key features:
0% corporate tax rate on qualifying revenueSimplified compliance requirementsReduced administrative burdenAnnual election requiredRevenue threshold: AED 3,000,000 per tax period
Purpose: Support genuine small businesses while ensuring larger businesses contribute appropriately to tax revenue.
Who Can Benefit?
Businesses eligible for Small Business Relief:
Resident juridical persons (UAE companies)Natural persons conducting business in UAERevenue below AED 3,000,000 thresholdMeet all qualifying conditionsMake formal election in tax returnNot eligible:
Part of multinational groupExempt personsQualifying free zone persons already at 0%Businesses electing out of reliefIndustry Context: Universal Application
All Sectors Can Apply (If Eligible)
Small Business Relief applies across industries, provided revenue stays below threshold:
Food & Beverage:
Small cafes and restaurantsHome bakeriesFood trucksCatering startupsE-Commerce:
Online retailersDropshipping businessesAmazon/Noon sellersSocial media sellersRetail:
Boutique storesSpecialty shopsPop-up storesMarket stallsSalons & Personal Services:
Beauty salonsBarbershopsNail studiosMassage centersClinics & Healthcare:
Small medical clinicsDental practicesPhysiotherapy centersAlternative medicine practitionersContracting:
Small contracting firmsSpecialized tradesFit-out contractorsMaintenance providersProfessional Services:
ConsultantsFreelance professionalsTraining providersCreative agenciesMany SMEs assume they qualify automatically. Others incorrectly exclude parts of revenue to stay under threshold. These mistakes create audit risks.
Common Problems and Mistakes
Critical Errors Business Owners Make
Miscalculating revenue:
Excluding platform feesNot counting credit salesMissing ancillary incomeForgetting foreign incomeUsing cash basis accounting:
FTA requires accrual basisCash receipts ≠ revenueTiming differences create errorsIncomplete picture of businessDeducting platform commissions wrongly:
Gross revenue must include commissionsCannot net commission against revenueCommission is operating expense, not reduction of revenueWeak documentation:
Missing invoicesNo contractsIncomplete recordsCannot substantiate revenueMissing reconciliation:
Books don't match bank statementsVAT returns inconsistentCannot trace transactionsGaps in audit trailIncorrect CT election:
Forgot to check relief box in returnAssumed automatic applicationMissed filing deadlineNo written recordWhy Proper Application Matters
Consequences of Incorrect Relief Claims
If a business claims relief incorrectly, serious consequences follow:
FTA reviews:
Accounting records scrutinizedBank reconciliation demandedVAT filings cross-checkedSupporting documentation requestedPenalties:
Tax assessment if relief deniedInterest on unpaid taxPenalties for incorrect returnAdditional compliance obligationsAudit triggers:
Frequent errors flag account for auditFull tax position reviewedMulti-year investigationIncreased scrutiny ongoingLoss of relief:
Retroactive denial of reliefBack taxes owedInterest accumulatesFuture relief at riskBusinesses that misapply relief risk investigations and significant financial exposure.
Deep Breakdown: Technical Requirements
1. Eligibility Criteria
Revenue must stay below AED 3,000,000 threshold. Revenue includes:
Operating revenue:
Sales of goodsService incomePlatform receipts (gross, before commissions)Rental income from investment propertyRoyalties and licensing feesCredit sales:
Invoiced sales (even if not yet collected)Accounts receivable at year-endAccrued revenueIncidental income:
Interest incomeForeign exchange gainsCompensation receivedGovernment grants (if taxable)What's excluded:
Capital gains (with exceptions)Dividends from UAE sources (with exceptions)Non-business incomeCalculation method: Accrual basis only
2. Accounting Requirements
FTA expects proper accrual accounting:
Required records:
Complete general ledgerProperly structured chart of accountsMonthly trial balancesBank reconciliationsReceivables and payables schedulesCut-off procedures:
Proper period-end cut-offAccrued expenses recordedDeferred revenue recognizedPrepayments capitalizedContracts and documentation:
Sales contractsPurchase ordersService agreementsLease agreementsEmployment contractsSupporting documents:
All invoices (sales and purchases)Bank statementsPayment receiptsCredit notes and refundsImport/export documentationThis means proper ledgers, cut-offs, reconciliations, contracts, and supporting documents maintained continuously.
3. Filing the Election
Relief must be elected in the Corporate Tax return:
How to elect:
Complete corporate tax returnCheck appropriate box for Small Business ReliefSubmit within filing deadline (9 months after tax period end)Maintain written record of electionAnnual election:
Relief not automaticMust elect each tax periodCannot assume continuityReview eligibility annuallyMissing this step means no relief, even if eligible. Many businesses complete the return but forget to check the relief box.
4. Restrictions and Limitations
If relief is elected, businesses face certain restrictions:
Cannot claim certain deductions:
Specific deductions may be limitedTransfer pricing documentation simplifiedLoss carryforward restrictedCannot carry forward losses:
Taxable losses from relief periods cannot be carried forwardIf business grows beyond threshold, prior losses unavailableSimplified compliance:
Reduced transfer pricing obligations (if applicable)Less complex documentationFewer reporting requirementsMust maintain eligibility:
Monitor revenue continuouslyPlan for growthPrepare exit strategy if approaching threshold5. Documentation Requirements
Businesses must maintain comprehensive documentation:
Invoices:
All sales invoices issuedAll purchase invoices receivedCredit and debit notesVAT invoices (if VAT registered)Contracts:
Customer contractsSupplier agreementsEmployment contractsLease agreementsVAT returns (if registered):
All submitted VAT returnsVAT reconciliationsPayment confirmationsReconciliations:
Monthly bank reconciliationsReceivables aging reportsPayables aging reportsInventory reconciliationsBank statements:
All business bank account statementsPayment processor statementsCredit card statementsInventory records (if applicable):
Physical inventory countsInventory valuationCost recordsRetention period: 7 years from end of relevant tax period (UAE legal requirement)
Practical Examples by Industry
Food & Beverage
Scenario: Small cafe with delivery aggregator sales
Common mistake:
Owner calculates revenue as: Cash received from TalabatExcludes Talabat commission from revenueCorrect approach:
Revenue = Full customer payment (before Talabat takes commission)Talabat commission = Operating expenseExample: Customer pays AED 100. Talabat takes AED 25 commission. Revenue = AED 100, not AED 75Supporting documentation:
Talabat settlement reportsGross sales dataCommission expense recordsBank deposit recordsTrading
Scenario: Small trading company with one-off large deal
Common mistake:
Owner thinks: "This big order is unusual, it shouldn't count"Attempts to exclude large sale to stay under thresholdCorrect approach:
All revenue counts, including unusual transactionsLarge one-time deals cannot be excludedIf total revenue exceeds AED 3,000,000, relief not availablePlan ahead for growthAction:
Monitor running revenue totalProject year-end revenuePrepare for standard 9% rate if exceeding thresholdClinics
Scenario: Medical clinic with insurance payments
Common mistake:
Revenue recorded only when insurance pays (cash basis)Services rendered in December, payment received in FebruaryDecember revenue understatedCorrect approach:
Revenue recognized when service provided (accrual basis)Insurance receivables counted as revenueExample: AED 200,000 services in December. Payment in February. December revenue = AED 200,000Documentation:
Patient service recordsInsurance claims submittedAccounts receivable agingPayment receipt recordsHow Ratio Supports Small Business Relief
Comprehensive Compliance Services
Revenue Validation:
Review all income sourcesConfirm correct revenue recognitionVerify accrual accounting appliedEnsure completenessAccounting Cleanup:
Restructure chart of accountsImplement accrual accountingClean up historical recordsReconcile all accountsThreshold Review:
Calculate total qualifying revenueConfirm eligibility for reliefProject future periodsPlan for growth scenariosCT Return Preparation:
Complete corporate tax return accuratelyElect Small Business Relief correctlyPrepare supporting schedulesFile within deadlineDocumentation Audit:
Review existing documentationIdentify gapsOrganize records systematicallyEnsure 7-year retentionOngoing Monitoring:
Track revenue monthlyAlert when approaching thresholdPlan transition if neededMaintain continuous complianceImplementation Checklist
Step-by-Step Compliance
Step 1: Confirm Revenue (Week 1)
[ ] List all revenue sources[ ] Calculate total revenue on accrual basis[ ] Include all required items[ ] Exclude only permitted items[ ] Document calculation methodologyStep 2: Validate Accounting Method (Week 2)
[ ] Confirm accrual basis accounting used[ ] Review month-end cut-off procedures[ ] Check accrued revenue recorded[ ] Verify deferred revenue properly treated[ ] Document accounting policiesStep 3: Reconcile Ledgers (Week 2-3)
[ ] Reconcile general ledger to bank statements[ ] Reconcile revenue per books to VAT returns (if applicable)[ ] Investigate and resolve discrepancies[ ] Document reconciliation resultsStep 4: File CT Election (Before filing deadline)
[ ] Complete corporate tax return[ ] Check Small Business Relief box[ ] Attach required schedules[ ] Review for accuracy[ ] Submit within 9-month deadline[ ] Save confirmationStep 5: Maintain Evidence (Ongoing)
[ ] Organize invoices chronologically[ ] File contracts and agreements[ ] Save VAT returns and reconciliations[ ] Maintain bank statements[ ] Keep all for 7 yearsConclusion
Small Business Relief works only when applied correctly. It provides meaningful tax savings for eligible businesses, but incorrect application creates significant risks.
Success requires:
Accurate revenue calculation on accrual basisProper accounting records and documentationFormal election in corporate tax returnOngoing monitoring of eligibilityProfessional guidance when neededDon't risk penalties and audit exposure. Ensure your Small Business Relief claim is accurate, documented, and defensible.
Get Expert Support
If you want clarity on eligibility, accurate revenue calculation, and confident filing, Ratio provides complete Corporate Tax compliance support for small businesses.
Our Services:
Revenue validation and threshold analysisAccounting method review and cleanupCorporate tax return preparationSmall Business Relief electionDocumentation organization and auditOngoing compliance monitoringWe validate your accounts, prepare your return, and ensure your CT position is accurate.
Speak to our CT team to eliminate compliance risks and secure your Small Business Relief eligibility with confidence.
