Small Business Relief & the 2027 Tax Cliff
The relief ends 31 December 2026. Check what you still save this year, what you will owe from 2027 on the same profit, and whether electing is actually the right call.
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General guidance based on Article 21 of Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 73 of 2023 — not tax advice. It assumes a standard twelve-month tax period and does not model tax groups, transitional periods, the QFZP de minimis test, or the interaction with carried-forward losses from earlier periods. Confirm your position with a registered tax agent before electing or declining.
What happens on 1 January 2027
Small Business Relief was always a bridge, not a permanent feature. It applies to tax periods ending on or before 31 December 2026, and the Ministry of Finance has announced no extension. From the next period, every UAE business falls under the standard regime regardless of size.
| Taxable profit | Tax with relief | Tax from 2027 |
|---|---|---|
| AED 375,000 | Nil | Nil — covered by the 0% band |
| AED 800,000 | Nil | AED 38,250 |
| AED 1,500,000 | Nil | AED 101,250 |
| AED 2,500,000 | Nil | AED 191,250 |
Revenue and taxable income are different tests
The AED 3 million figure is a revenue test and it decides whether you can elect the relief at all. The AED 375,000 figure is a taxable income band, it is permanent, and it applies to everyone with or without the relief. Confusing the two is the most common error here: a business with AED 2.9 million of revenue and AED 900,000 of profit qualifies, while one with AED 3.1 million of revenue and AED 50,000 of profit does not.
Electing is not always the right answer
Almost every guide treats the election as free money. It is not, in one specific case. Electing Small Business Relief forfeits any tax loss and disallowed net interest arising in that period, so neither can be carried forward. A business making a loss now that expects profits later may do better by declining the election, banking the loss, and using it to shelter future taxable income — income that from 2027 will actually be taxed.
If you are profitable this period there is no trade-off at all and the election is simply worth making. The decision only becomes interesting when you are at or near breakeven.
What to do with the time left
- Elect it for every remaining eligible period. The saving is real while it lasts, and the election is never automatic — a qualifying business that does not tick the box pays full tax.
- Fix the bookkeeping. The relief permitted cash-basis accounting and light records. That will not be adequate from 2027, and the FTA can disallow a past claim retrospectively if you cannot evidence that revenue stayed under AED 3 million.
- Reprice. A tax cost appearing where there was none has to come from margin or from customers. Deciding which is a commercial decision better made now than in the week the return is due.
- Capture deductions properly. Under the relief, deductions were largely irrelevant because taxable income was treated as nil. From 2027 every allowable expense reduces a bill that genuinely exists.
Frequently Asked Questions
When does Small Business Relief end?
It applies only to tax periods ending on or before 31 December 2026, and the Ministry of Finance has announced no extension. If your financial year ends on 31 December, the period ending 31 December 2026 is your last eligible one. If it ends in March, June or September 2026 you can still elect for that period. Any tax period beginning on or after 1 January 2027 falls under the standard rules regardless of how small the business is.
What will I actually pay from 2027?
The standard regime: nought per cent on the first AED 375,000 of taxable income and nine per cent on everything above it. A business with AED 800,000 of taxable profit pays AED 38,250 a year. At AED 1.5 million of profit it is AED 101,250. That is an annual cost appearing where there was previously none, and it needs to be in your pricing and cash flow planning now rather than discovered when the first return falls due.
Is the AED 3 million limit about revenue or profit?
Revenue, not profit, and this trips people up constantly. Small Business Relief tests your gross revenue against AED 3 million. The separate AED 375,000 figure is a taxable income threshold and it is permanent — every business pays nothing on its first AED 375,000 of taxable income whether or not it ever elected the relief. A business with AED 2.9 million of revenue and AED 900,000 of profit qualifies for the relief; a business with AED 3.1 million of revenue and AED 50,000 of profit does not.
Is there any reason not to elect the relief?
Yes, and it is regularly overlooked. Electing Small Business Relief forfeits any tax losses and disallowed net interest arising in that period, so they cannot be carried forward against future profits. A business making a loss now that expects to be profitable later may be better off not electing, banking the loss, and using it to shelter future taxable income. If the business is profitable this period there is no such trade-off and the election is simply worth making.
Do I still have to file if I elect the relief?
Yes. Registration, record-keeping and filing all remain mandatory. The relief means you are treated as having no taxable income, not that you are outside the corporate tax system. It also has to be elected actively on each return, so a business that qualifies but simply does not tick the box pays full tax for that period. The FTA can request documentation proving revenue stayed below AED 3 million and disallow the claim retrospectively if you cannot produce it.
Can a free zone company elect Small Business Relief?
A Qualifying Free Zone Person cannot, because it already benefits from a nought per cent rate on qualifying income. A free zone entity that is not a QFZP, or that has lost qualifying status, is treated like any other UAE resident business and can elect if it meets the revenue test. Members of a multinational group with consolidated global revenue above AED 3.15 billion are also excluded, even where the UAE entity itself is tiny.
What should I do before the relief ends?
Get proper accounting in place, because the relief permitted cash-basis accounting and simplified records that will not be adequate from 2027. Model the tax as a real cost in your pricing and cash flow. Review whether legitimate deductions are being captured, since from 2027 every allowable expense reduces a bill that actually exists. And elect the relief for every remaining eligible period, because the saving is real while it lasts.
Get your accounting ready before 2027
The relief allowed cash-basis records that will not survive the standard regime. Browse UAE accounting firms and registered tax agents who can put proper bookkeeping in place while there is still time.