Two numbers dominate every conversation about UAE corporate tax for small companies: AED 375,000 and AED 3 million. They are often treated as two versions of the same idea. They are not related at all, and confusing them leads businesses either to overpay, to skip registration, or to get an unpleasant surprise later.
The short version: AED 375,000 is a profit band that every business gets automatically and permanently. AED 3 million is a revenue limit for Small Business Relief, a separate, temporary election that has now been extended to tax periods ending on or before 31 December 2029. This guide explains each one, shows how they work on real numbers, and lists the mistakes that cost businesses money.
The two numbers side by side
| AED 375,000 | AED 3 million | |
|---|---|---|
| What it measures | Taxable income (profit) | Revenue (turnover) |
| What it gives you | 0% tax on the first AED 375,000 of taxable income | The option to be treated as having no taxable income at all |
| Who gets it | Every taxable person, automatically | Only resident persons who qualify and elect it |
| How long it lasts | Permanent part of the rate structure | Tax periods ending on or before 31 Dec 2029 (extended from 2026) |
| Do you need to register and file? | Yes | Yes |
The AED 375,000 band
This is simply how the corporate tax rate works. Every business pays 0% on its first AED 375,000 of taxable income and 9% on the amount above that. It applies automatically and regardless of turnover. There is nothing to elect.
Because the test is profit, not size, a large business with thin margins can owe little or nothing, while a small, very profitable one pays 9% on part of its profit.
| Business | Revenue | Taxable income | Tax under standard rules |
|---|---|---|---|
| Distributor with thin margins | AED 40,000,000 | AED 300,000 | AED 0 |
| Consultancy | AED 900,000 | AED 600,000 | AED 20,250 (9% of AED 225,000) |
| Trading company | AED 2,000,000 | AED 800,000 | AED 38,250 (9% of AED 425,000) |
The band is not "an exemption that is ending". It is part of the rate structure in the Corporate Tax Law and does not have an end date.
Small Business Relief
Small Business Relief is a separate mechanism. If your revenue is AED 3 million or less, you can elect to be treated as having no taxable income for that tax period, so no corporate tax is due even if your profit is well above AED 375,000.
The relief was originally limited to tax periods ending on or before 31 December 2026. In August 2026, Ministerial Decision No. 131 of 2026 extended it to tax periods ending on or before 31 December 2029. The other conditions did not change.
Who qualifies
- You are a resident person for corporate tax purposes (a UAE company, or an individual running a business in the UAE).
- Your revenue is AED 3 million or less in the current tax period and in every previous tax period since corporate tax started to apply to you.
- You are not a Qualifying Free Zone Person, and not a member of a large multinational group (consolidated revenue of AED 3.15 billion or more).
- You have not artificially split a business into several entities to stay under the threshold.
What it is worth
For the trading company above, with AED 2 million revenue and AED 800,000 taxable income, the standard rules produce a bill of AED 38,250. With Small Business Relief elected, the bill is nil. That AED 38,250 is what the relief is worth each year, and after the extension it remains available for every tax period ending up to 31 December 2029, as long as revenue stays at or below AED 3 million.
Why they do not stack
A common question is whether you can use both. In practice you cannot combine them in any meaningful way. If you elect Small Business Relief, your taxable income is treated as zero, so the 0% band has nothing to apply to. If you do not elect it, the standard 0% and 9% structure applies as usual. You are choosing between two outcomes, not adding them together.
When electing the relief is the wrong choice
Electing is usually right when you are profitable. It can be the wrong call when you make a loss. In a tax period where you elect Small Business Relief, tax losses for that period cannot be carried forward, and disallowed net interest from that period cannot be used later.
Example
A new restaurant has AED 2.5 million revenue and a tax loss of AED 300,000 in its first year, and expects a profit of AED 700,000 the following year. If it elects the relief in year one, the AED 300,000 loss is lost. If it does not elect in year one, it carries the loss forward. In year two it can then compare: elect the relief (nil tax) or use the standard rules with the loss offset (taxable income AED 400,000, tax AED 2,250). Here electing in year two still wins, but for businesses close to the AED 3 million limit, keeping losses available for later years can matter. Model both routes before you file.
Where the confusion causes real damage
"We are under AED 3 million, so we do not need to register." Wrong on both counts. Registration is required regardless of size, and the relief is claimed inside the tax return you file. Missing registration creates a fixed AED 10,000 penalty that has nothing to do with how much tax you owe.
"The AED 375,000 exemption is ending." It is not. It is permanent. What has an end date is Small Business Relief, now 31 December 2029.
"We are a free zone company, so both apply to us." A Qualifying Free Zone Person taking the 0% rate on qualifying income cannot elect Small Business Relief. You choose one route or the other. A free zone company that is not claiming qualifying status may be able to elect the relief, subject to the same conditions.
"Our revenue dropped below AED 3 million again, so we qualify again." The test looks at the current period and every previous period. Exceed AED 3 million once and the relief is gone for later periods, even if revenue falls.
"Revenue means profit." It does not. Revenue is your total income from sales and services before expenses, as shown in your financial statements.
Freelancers and individuals
An individual running a business or freelance activity only becomes subject to corporate tax once their business turnover exceeds AED 1 million in a calendar year. Above that, both numbers in this guide apply in the same way: the AED 375,000 band always, and Small Business Relief if business revenue is AED 3 million or less and they elect it.
Working out which applies to you
- Confirm you are registered with the Federal Tax Authority.
- Check your revenue for this and every previous tax period against AED 3 million.
- If you qualify for the relief, calculate tax both ways: with the relief, and under the standard 0% and 9% rules.
- Consider losses: if you have a loss this year, check whether keeping it is worth more than electing.
- Make the election in the return for each period where you want it.
The Small Business Relief Checker covers the eligibility conditions including the exclusions. For the standard-rules arithmetic, the Corporate Tax Calculator shows what the 0% band and the 9% rate produce on your numbers, and the 3 helps you estimate taxable income before year-end.
The planning point
Businesses relying on Small Business Relief have had little reason to care about their taxable income figure, because it is treated as zero. That changes the moment revenue crosses AED 3 million, or when the relief ends after 2029. From then on, expense records, depreciation and the timing of income and costs all affect the bill. Keeping proper accounts now, even while you pay nothing, makes that switch painless. It also protects you if the FTA asks you to show that your revenue really was under AED 3 million: invoices, bank statements and financial statements are the evidence, and they must be kept for at least seven years.
Common mistakes to avoid
- Not registering because no tax is due.
- Forgetting to elect the relief in the return; it is not applied automatically.
- Electing in a loss year without checking the value of the loss.
- Mixing up revenue and profit when checking the thresholds.
- Assuming the relief will be extended again after 2029.
AED 375,000 is a permanent 0% profit band that every business gets; AED 3 million is the revenue limit for Small Business Relief, an optional election that now runs to tax periods ending on or before 31 December 2029. Register, check both numbers every year, and calculate your tax both ways before choosing.
General information only, not tax advice. Confirm your position with the Federal Tax Authority or a registered tax agent.