Small Business Relief for a Foreign Company

Small Business Relief (SBR) is available only to Resident Persons (natural and juridical persons) whose revenue is ≤ AED 3,000,000. Foreign companies may only be eligible if they are treated as UAE residents (for example, a foreign juridical person that is effectively managed and controlled in the UAE); non-resident foreign companies that are not tax residents cannot elect SBR.

Designed to support startups, SMEs, and low-revenue businesses, SBR ensures that eligible companies with annual revenue not exceeding AED 3 million are exempt from paying corporate tax. This move enhances business sustainability and encourages foreign entrepreneurs to invest and grow their operations in the UAE.

What is Small Business Relief?

Small Business Relief is available for Tax Periods beginning on or after 1 June 2023 and is available for Tax Periods that end on or before 31 December 2026, subject to the revenue and other eligibility conditions.

Under this scheme, qualifying businesses are treated as if they have zero taxable income, which means no 9% corporate tax is levied, effectively reducing financial burdens for small enterprises and foreign-owned startups operating locally. Businesses seeking to understand or qualify for this scheme can consult with Corporate Tax Experts in Abu Dhabi.

Eligibility Criteria for Foreign Companies

Foreign companies can benefit from SBR if they meet the following conditions:

• A foreign juridical person may only be eligible for SBR if it is treated as a UAE Resident Person (for example, if it is effectively managed and controlled in the UAE) and it meets the AED 3,000,000 revenue test and is not excluded (e.g., a member of an MNE or a Qualifying Free Zone Person). Residency is determined on the specific facts of each case.
• It must be a resident person for tax purposes (including foreign-owned entities with UAE operations).
• Annual gross revenue must not exceed AED 3 million in the current and all previous tax periods since June 1, 2023.
• It must not be a Qualifying Free Zone Person already enjoying tax exemptions.
• It should not be part of a Multinational Enterprise Group with global consolidated revenues over AED 3.15 billion.

What are the Key Benefits?

Here’s how Small Business Relief in the UAE supports foreign companies:

1. 0% Corporate Tax Liability

• If a business qualifies for SBR, it is treated as having no taxable income, meaning 0% corporate tax is applied for that financial year.
• Applies only if revenue is ≤ AED 3 million for the current and all previous tax periods starting from June 1, 2023, to December 31, 2026.

2. Simplified Tax Compliance

• No complex transfer pricing documentation is required.
• Businesses under SBR can use cash-based accounting, which simplifies bookkeeping.
• Filing is done through the EmaraTax portal, with fewer requirements than regular Corporate Tax filers.

3. Reduced Operational Costs

• With 0% tax and fewer compliance burdens, foreign startups can save on hiring auditors, consultants, or legal advisors, especially in the early stages.

4. Boosted Cash Flow and Profit Retention

Since no tax is paid on profits, businesses can reinvest 100% of their earnings into scaling operations, hiring staff, or expanding locally.

5. No Transfer Pricing Rules

• Companies that qualify for SBR are exempt from maintaining or submitting transfer pricing documentation, provided they meet the specified criteria.
• This removes one of the costliest and most complex compliance burdens for small foreign firms.

How Does it Work?

• Register for Corporate Tax via the EmaraTax portal.
• Ensure your revenue is AED 3 million or below.
• Maintain basic financial records (invoices, receipts, bank statements).
• Elect for Small Business Relief on your corporate tax return.
• Where the Person’s Revenue does not exceed AED 3,000,000, the Person may prepare financial statements using the cash basis of accounting (otherwise the applicable accounting standards such as IFRS or IFRS for SMEs apply).
• Monitor your revenue; exceeding the limit disqualifies you from relief that year.

What happens if you Grow Beyond the Threshold?

If your revenue exceeds AED 3 million in any financial year:

• If your revenue exceeds AED 3 million in a Tax Period and you can no longer elect SBR, you must calculate Corporate Taxable Income under the Corporate Tax Law - the standard rules apply (currently: 0% on the first AED 375,000 of taxable income and 9% on the portion above AED 375,000), unless other specific regimes apply.
• If you no longer qualify for SBR, you must comply with standard Corporate Tax rules (including transfer pricing rules where applicable). Note that SBR electors are exempt from preparing transfer pricing documentation for that Tax Period but must still comply with the arm’s length principle; audited financial statements are not universally required, audited statements are required only for categories set by Ministerial Decision (for example, taxable persons with revenue exceeding AED 50,000,000 and Qualifying Free Zone Persons).
• You won’t be eligible to opt back into SBR for any future tax periods, even if your revenue drops again.

Who Should Opt for Small Business Relief?

This program is ideal for:

• Foreign entrepreneurs with locally managed businesses.
• Freelancers and independent professionals earning under AED 3M/year.
• Small consulting firms, IT developers, digital agencies, or e-commerce sellers.
• Startups in early growth stages that reinvest profits back into operations.

Conclusion

Small Business Relief (SBR) is a valuable tax benefit introduced by the UAE to support startups and small enterprises, especially those with foreign ownership but managed within the Emirates. It offers zero corporate tax, reduced compliance, and greater financial flexibility, helping you reinvest in growth without worrying about heavy tax burdens.

If your company earns AED 3 million or less annually, SBR can be a smart and strategic choice, but it requires proper planning, correct registration, and regular revenue monitoring.

At Reyson Badger, we specialize in guiding foreign-owned businesses through the UAE's tax landscape. Our experienced consultants can help you determine eligibility, file the right documents, and stay compliant so you can focus on what matters most: growing your business.

Refer to our comprehensive guide on Small Business Relief under the UAE Corporate Tax for eligibility requirements and important insights.