Small Business Relief — and what happens when it ends

Small Business Relief lets a resident taxable person with revenue of AED 3 million or less in the relevant tax period — and in every previous one — elect to be treated as having no taxable income at all. Not taxed at zero on the first AED 375,000 and 9% above it: treated as having earned nothing, with no tax to pay even where profits are substantial. It is an election made in the tax return rather than an automatic status, and it is unavailable to Qualifying Free Zone Persons and to members of multinational groups.

The relief applies to tax periods beginning on or after 1 June 2023 and ending on or before 31 December 2026. For a company on a calendar financial year, the period ending 31 December 2026 is the last one that can qualify — and the return for it is not due until September 2027, which is precisely why this is so easy to miss. The first genuinely taxable period begins on 1 January 2027, the first real tax bill arrives with the 2027 return, and by then the pricing, the salary structure and the distribution policy that would have mitigated it are already fixed. The planning window is now, not at filing.

What the election costs you

Electing into the relief is not free of consequence. Tax losses arising in a period covered by the relief cannot be carried forward and used later, and disallowed interest cannot be carried forward either. For a company investing heavily and generating losses under AED 3 million of revenue, the election can be worse than declining it — the losses would otherwise shelter profits in 2027 and beyond.

Who cannot use it

Qualifying Free Zone Persons are excluded outright: a company cannot take the 0% qualifying rate and Small Business Relief. Members of multinational enterprise groups with consolidated revenues above the Pillar Two threshold are also excluded. And the revenue test looks at all previous tax periods, so a single year above AED 3 million disqualifies you permanently.

Thresholds and deadlines

Threshold

Revenue of AED 3,000,000 or less

Effect

Treated as having no taxable income — not a reduced rate

Applies to

Tax periods beginning on or after 1 June 2023

Ends

Tax periods ending on or before 31 December 2026

Excluded

Qualifying Free Zone Persons and MNE group members

Election

Made in the tax return; not automatic

1. Establish your last qualifying periodIt is the last tax period ending on or before 31 December 2026. For a calendar-year company that is the year to 31 December 2026.
2. Check whether electing is actually right this yearIf you are loss-making, the election forfeits carry-forward of those losses. Model it rather than electing reflexively.
3. Model the 2027 position nowAt 9% above AED 375,000 of taxable income. For a company earning AED 1 million of profit that is a real and previously absent cost.
4. Review the structure before the period beginsSalary and dividend mix, group structure, transfer pricing, and whether a free zone qualifying position is available. All of it has to be in place before 1 January 2027, not at filing.
5. Watch for an extension, but do not plan on oneNone has been announced. Planning on the assumption of one is the expensive version of this decision.

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