Most UAE business owners can tell you the headline: corporate tax is 9%. Far fewer can tell you what they will actually pay. The short answer is that the 9% only applies to taxable profit above AED 375,000, many small businesses can still elect to pay nothing at all under Small Business Relief, and free zone companies live under a separate set of rules with a very sharp edge.
This guide walks through how the tax is really calculated, who pays what, what the August 2026 extension of Small Business Relief changed, and the registration and filing steps that apply even when the bill is zero.
The 9% is not charged on all your profit
This is the most common misunderstanding. The rate structure for a mainland company is:
- 0% on the first AED 375,000 of taxable income
- 9% on everything above AED 375,000
The AED 375,000 band is a permanent part of the rate structure. It is not a temporary concession and it is not the same thing as Small Business Relief, which is a separate election based on revenue (more on that below).
Example: what the bill looks like at different profit levels
| Taxable income | Taxed at 0% | Taxed at 9% | Corporate tax due | Effective rate |
|---|---|---|---|---|
| AED 300,000 | AED 300,000 | AED 0 | AED 0 | 0% |
| AED 500,000 | AED 375,000 | AED 125,000 | AED 11,250 | 2.25% |
| AED 900,000 | AED 375,000 | AED 525,000 | AED 47,250 | 5.25% |
| AED 2,000,000 | AED 375,000 | AED 1,625,000 | AED 146,250 | 7.31% |
The effective rate only approaches 9% as profit grows very large. A company with AED 900,000 of taxable income pays about 5.25% of it, not 9%.
See your own number
The UAE Corporate Tax Calculator applies the 0% band, the 9% rate, Small Business Relief and the free zone rules, and shows what you would owe.
From accounting profit to taxable income
Corporate tax is not charged on revenue, and it is not charged directly on the profit in your bank account either. The starting point is the net profit in your financial statements, which are then adjusted for tax purposes. The adjustments that matter most for small and mid-sized companies are:
- Entertainment: only 50% of client entertainment costs (meals, events, hospitality for customers and suppliers) is deductible. The other half is added back.
- Fines and penalties: government fines and penalties are not deductible, so a traffic fine on a company car or a late-filing penalty is added back.
- Donations: only donations to approved charities are deductible.
- Interest: net interest expense above a set limit can be restricted for larger borrowers, with an exemption for smaller amounts. If your company carries significant loans, check the current threshold with your accountant.
- Exempt income: qualifying dividends and certain capital gains on participations can be excluded.
This is why clean bookkeeping matters. The tax figure is only as reliable as the accounts it is built on, and the Federal Tax Authority (FTA) expects you to be able to support every number on the return.
Small Business Relief: extended to 2029
If your revenue is AED 3 million or less, you can elect Small Business Relief and be treated as having no taxable income for that tax period. No corporate tax is due at all, even if your profit is above AED 375,000.
The relief was originally available only for tax periods ending on or before 31 December 2026, and many guides (including an earlier version of this one) warned about a cliff at the end of 2026. That has changed. In August 2026 the Ministry of Finance issued Ministerial Decision No. 131 of 2026, which extends Small Business Relief to tax periods ending on or before 31 December 2029. The AED 3 million threshold and the other conditions did not change.
Who can elect it
- You are a resident person for UAE corporate tax.
- Your revenue is AED 3 million or less in the current tax period and in every previous tax period. Cross AED 3 million once and the relief is gone for later periods, even if revenue falls again.
- You are not a Qualifying Free Zone Person. The two regimes cannot be combined.
- You are not part of a large multinational group (consolidated group revenue of AED 3.15 billion or more).
- You have not split one business into several companies just to stay under the threshold. The FTA can set aside such arrangements under the general anti-abuse rules.
What you give up when you elect it
Electing the relief is usually the right call, but it is a trade-off. In a period where you elect Small Business Relief you cannot carry forward a tax loss for that period, and disallowed interest from that period cannot be used later. A business that is loss-making this year and expects profits next year should work out which option leaves it better off before filing.
Example: what the extension is worth
A trading company with AED 2.4 million revenue and AED 700,000 taxable income would owe AED 29,250 under the standard rules (9% of AED 325,000). With Small Business Relief elected, it owes nil. Before the extension, that bill would have started with the 2027 tax period. Now, as long as revenue stays at or below AED 3 million, the company can keep electing the relief for 2027, 2028 and 2029.
Free zones: 0%, but on a knife edge
A Qualifying Free Zone Person (QFZP) pays 0% on Qualifying Income. Broadly, that means income from transactions with other free zone persons and from qualifying activities with customers outside the UAE. Income from mainland customers is generally not qualifying and is taxed at 9%, with no AED 375,000 band on that portion.
To keep QFZP status, a free zone company must meet several conditions, including adequate substance in the free zone, audited financial statements, and compliance with transfer pricing rules. The condition that catches most companies is the de minimis rule.
The de minimis rule
Non-qualifying revenue must stay within the lower of 5% of total revenue or AED 5 million. Cross that line and you lose QFZP status for the current tax period and the following four. The 0% rate disappears on all your income for five years.
| Total revenue | 5% of revenue | De minimis limit (lower of 5% or AED 5m) |
|---|---|---|
| AED 4,000,000 | AED 200,000 | AED 200,000 |
| AED 40,000,000 | AED 2,000,000 | AED 2,000,000 |
| AED 150,000,000 | AED 7,500,000 | AED 5,000,000 |
For a small free zone company, the limit is far lower than most owners assume. At AED 4 million of revenue, a single mainland contract worth AED 250,000 is enough to break it. It is a cliff, not a slope: being AED 1 over costs the same as being AED 1 million over. If you are anywhere near the limit, take advice before you sign the contract, not when you prepare the return.
A free zone company that does not qualify, or chooses not to, is simply taxed like a mainland company: 0% on the first AED 375,000 and 9% above it. It also cannot elect Small Business Relief while it is a QFZP, so a small free zone business should compare both routes.
Individuals and freelancers
Corporate tax is not limited to companies. A natural person running a business or freelance activity in the UAE becomes a taxable person once their business turnover exceeds AED 1 million in a calendar year. Salary, personal investment income and personal real estate income are not counted. Above that turnover, the same rules apply: registration, the 0% band, the 9% rate, and the option to elect Small Business Relief if revenue is AED 3 million or less.
Registration and filing
Every taxable person must register with the FTA through EmaraTax and obtain a Corporate Tax Registration Number, even if no tax is due. That includes companies electing Small Business Relief and free zone companies paying 0%.
- Register on EmaraTax. Late registration carries a fixed penalty of AED 10,000, which is the most common penalty small companies pay.
- Keep records for at least seven years after the end of the tax period: financial statements, invoices, contracts and the workings behind your return.
- File the return within nine months of the end of your tax period. For a 31 December year end, the deadline is 30 September of the following year.
- Pay any tax due by the same nine-month deadline.
- Elect reliefs on the return. Small Business Relief is not automatic; you choose it in each return where you want it.
Late filing and late payment also carry penalties that grow the longer they run. The current penalty table is published by the FTA and has been revised before, so check it rather than relying on an older summary.
Corporate tax and VAT are separate
Being registered for one tax says nothing about the other. VAT registration is based on taxable supplies (mandatory above AED 375,000 a year, voluntary from AED 187,500), while corporate tax registration is required for every taxable person regardless of size. The two returns, deadlines and penalties are separate. The VAT Calculator helps with the VAT side.
Common mistakes to avoid
- Assuming nothing is owed means nothing to do. Registration and the annual return are required even at zero tax.
- Confusing the AED 375,000 band with Small Business Relief. One is based on profit and applies to everyone; the other is based on revenue and must be elected.
- Forgetting the "every previous period" test. One year above AED 3 million revenue ends Small Business Relief for good.
- Treating a mainland invoice casually in a free zone company. Track non-qualifying revenue monthly against the de minimis limit.
- Deducting all entertainment and fines. Half of entertainment and all government fines must be added back.
What to do now
- Confirm you are registered with the FTA and that your registration details are current.
- Work out your liability under both the standard rules and Small Business Relief, so you know what the election is worth.
- If you are a free zone company, check your non-qualifying revenue against the de minimis limit today.
- Put a reminder in the calendar for the nine-month filing deadline.
UAE corporate tax is lighter than the 9% headline suggests: the first AED 375,000 is taxed at 0%, and small businesses with revenue up to AED 3 million can elect to pay nothing until at least 2029. The obligations that do not go away are registration, records and an on-time return, so put those in order first and model your real bill with the calculator.
Rules and penalties change. Confirm the current position with the Federal Tax Authority or a registered tax agent before making decisions.