The UAE introduced corporate tax at 9 percent on taxable income exceeding AED 375,000. For businesses under AED 3 million in revenue, there is Small Business Relief (SBR) that effectively zeroes the liability. Sounds straightforward. It is not.
This is the single biggest misconception. You must register with the Federal Tax Authority, obtain a Tax Registration Number, file a tax return, and formally elect SBR for each qualifying tax period. If you skip the election, you owe tax on the standard schedule even if your revenue is below the threshold.
The AED 3 million threshold applies cumulatively across all previous tax periods. Once your business exceeds AED 3 million in any single period, you lose SBR eligibility permanently for all future periods. There is no re-entry. This means a one-off spike in revenue from a large project can disqualify you for every year that follows.
If you operate as a freelancer with turnover exceeding AED 1 million in 2025, you were required to register for corporate tax by 31 March 2026. Late registration carries a AED 10,000 penalty. Many freelancers assumed the tax did not apply to them. It does, and the deadline has passed or is imminent depending on when you are reading this.
Businesses that elect SBR can use cash-based accounting rather than accrual-based methods. That reduces bookkeeping complexity significantly. But you still need accurate records: invoices, expense receipts, and a clear audit trail. The FTA now has a five-year audit window under the amended Tax Procedures Law, and they will use it.
If you are a Qualifying Free Zone Person (QFZP), you may pay 0 percent on qualifying income. But income from services to UAE mainland clients is typically taxed at 9 percent. The qualification test includes adequate substance, qualifying activities, and income threshold compliance. Do not assume your free zone entity is automatically exempt.
Check your registration status on the FTA portal. If you have not elected SBR, do it in your next return. If your cumulative revenue is approaching AED 3 million, plan for the transition to standard tax filing. And if you are a free zone entity, get a formal opinion on QFZP status before you file.
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