The UAE Ministry of Finance has released Ministerial Decision No. 131 of 2026, on Amending Certain Provisions of Ministerial Decision No. 73 of 2023 on Small Business Relief for the Purposes of Federal Decree- Law no 47 of 2022 on the Taxation of Corporations and Businesses (“Ministerial Decision No. 131 of 2026”) which amends certain provisions of Ministerial Decision No. 73 of 2023 on the Small Business Relief for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Ministerial Decision No. 73 of 2023”). Specifically, Ministerial Decision No.131 of 2026 replaces Clause (2) of Article (2) of Ministerial Decision No.73 of 2026 by extending the Small Business Relief (“SBR”) application threshold to Tax Periods ending on or before 31 December 2029.
The extension will be welcomed by many Small and Medium Enterprises (“SMEs”), start-ups and owner-managed businesses. Despite its benefits, the eligibility requirements for SBR are frequently misunderstood. In particular, businesses often face challenges in determining what constitutes “Revenue” for SBR purposes and understanding the consequences of exceeding the AED 3 million Revenue threshold. As a result, it is important for businesses to carefully assess their eligibility criteria and monitor their Revenue levels to ensure continued compliance with the rules governing the relief.
This article explores the key considerations surrounding the AED 3 million Revenue threshold for SBR, including how Revenue should be assessed, the potential drawbacks of electing SBR, and the practical challenges businesses may encounter when determining their eligibility.
What is SBR?
In accordance with Article 21 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”), SBR is available to eligible Taxable Persons (being either a natural person or a juridical person) whose Revenue does not exceed AED 3 million during the relevant Tax Period and all previous Tax Periods that end on or before 31 December 2029.
A Taxable Person that elects to apply the SBR can benefit from both administrative simplifications and Corporate Tax relief. From an administrative perspective, the Taxable Person is not required to calculate its Taxable Income and may avail itself of simplified Corporate Tax compliance requirements, including simplified Tax Return filing, reduced record-keeping obligations. From a Corporate Tax perspective, the Taxable Person is treated as having no Taxable Income for the relevant Tax Period and, consequently, is not liable to pay Corporate Tax on income earned during that Tax Period.
It is important to note that SBR is not granted automatically rather it is available upon election. Taxable Persons who are eligible for SBR relief must elect the relief in their Corporate Tax return.
Extension of SBR
The UAE Ministry of Finance has extended the availability of SBR from Tax Periods ending on or before 31 December 2026 to Tax Periods ending on or before 31 December 2029. The extension demonstrates the UAE’s continued commitment to support SMEs and start-ups by reducing their Corporate Tax compliance burden and providing greater certainty during their growth phase. Importantly, the extension does not alter the existing eligibility criteria, including the AED 3 million Revenue threshold, but simply allows eligible Taxable Person to benefit from the SBR for additional Tax Periods.
What constitutes the AED 3 million threshold?
It is important to note that the AED 3 million threshold is determined based on Revenue rather than profit. Understanding this distinction is essential when assessing eligibility for the SBR.
For Corporate Tax purposes and SBR, Revenue refers to gross amount of income recognised during a Tax Period in accordance with the Accounting Standards applied by the Taxable Person. An eligible Taxable Person may apply either International Financial Reporting Standards (“IFRS”) (or IFRS for SME’s), or a Cash Basis of Accounting in order to calculate their Revenue for the purposes of determining if they are eligible to elect the SBR.
Revenue may be generated from a range of sources, including the sale of goods, provision of services, investment income, gains from the disposal of fixed assets, and foreign exchange transactions. The Revenue recognised may be determined on either a gross or net basis, depending on the applicable accounting treatment. For example, revenue from the sale of goods, provision of services is generally recognised at gross turnover, whereas gains arising from the disposal of fixed assets or investments are typically recognised on a net basis. Further, Revenue may include both Taxable and Exempt Income.
Similarly, non-cash transactions should not be overlooked, where an eligible Taxable Person receives goods or services instead of cash, such as under a barter arrangement, the Market Value of the consideration received generally forms part of Revenue.
Eligible Taxable Persons should therefore assess all Revenue streams when monitoring the AED 3 million threshold. Further, eligible Taxable Person approaching the AED 3 million Revenue threshold should therefore review all sources of income, not merely customer invoices or cash receipts.
By way of example, a UAE incorporated company with AED 2.9 million of Revenue and AED 1 million of profit in a Tax Period may qualify for SBR, while another UAE incorporated company generating AED 3.1 million of Revenue and only AED 20,000 of profit in a Tax Period will not qualify for SBR. Therefore, the test is generally based on Revenue and not accounting profits.
Another important consideration is that eligibility for the SBR is not assessed solely based on the current Tax Period. To qualify for the SBR, an eligible Taxable Person Revenue must not exceed AED 3 million in the current Tax Period or in any relevant preceding Tax Periods. Accordingly, eligibility must be evaluated with reference to both current and historical Revenue levels.
Furthermore, the AED 3 million Revenue threshold applies to Tax Periods commencing on or after 1 June 2023 and will continue to apply only to subsequent Tax Periods ending on or before 31 December 2029.
What happens if a Business exceeds AED 3 Million Revenue?
A common misconception among businesses is that exceeding the AED 3 million Revenue threshold in a particular Tax Period only results in the loss of SBR for that Tax Period, with eligibility being restored in subsequent Tax Period if Revenue subsequently falls below the threshold. However, this is generally not the case, once an eligible Taxable Persons exceeds the AED 3 million Revenue threshold in a Tax Period, it will no longer satisfy the Revenue condition required for SBR in future Tax Periods.
Therefore, once Revenue exceeds AED 3 million in a Tax Period, the businesses become ineligible for SBR in subsequent Tax Periods, even if Revenue falls below the threshold in later Tax Periods.
Key considerations before electing for SBR
While the SBR regime provides valuable relief for SMEs, eligible Taxable Persons should be aware that electing for SBR may limit access to certain benefits and provisions available under the UAE Corporate Tax regime. In particular, eligible Taxable Persons claiming SBR are unable to utilise a number of reliefs as set out in the Corporate Tax Law for the Tax Periods for which the SBR is applied, including:
- Tax Losses
If an eligible Taxable Person elects to apply SBR for a Tax Period, the provisions of the Corporate Tax Law relating to Tax Losses will not apply for that Tax Period. Accordingly, the eligible Taxable Person will not be permitted to generate, utilise, or transfer Tax Losses while benefiting from SBR.
Nevertheless, any unutilised Tax Losses carried forward from prior Tax Periods will not be extinguished as a result of electing for SBR. Such Tax Losses may continue to be carried forward and may be utilised in a subsequent Tax Period in which the taxpayer has Taxable Income and does not elect to apply SBR, subject to meeting the applicable conditions prescribed under the Corporate Tax Law for the carry-forward and utilisation of Tax Losses.
- Exempt Income
Under the UAE Corporate Tax Law, certain categories of income benefit from an exemption from Corporate Tax. These include, among others, dividends and other profit distributions received from UAE resident juridical persons, income and gains derived from a Participating Interest in a UAE resident juridical person, and dividends and other profit distributions received from a Participating Interest in a foreign juridical person.
However, the Exempt Income provisions do not apply to eligible Taxable Persons that have elected to claim SBR. Consequently, when assessing eligibility for SBR, all income recognised in accordance with the applicable Accounting Standards must generally be taken into account in determining Revenue, including income that would otherwise qualify as Exempt Income under the Corporate Tax Law. As a result, exempt dividends, participation gains, and other forms of Exempt Income may contribute towards the AED 3 million Revenue threshold for SBR purposes.
- General Interest Deduction Limitation Rule
If an eligible Resident Person elects to apply SBR for a Tax Period, the General Interest Deduction Limitation Rule will not apply during that Tax Period. Accordingly, the eligible taxable Person will not be permitted to accrue Net Interest Expenditure, utilise any available interest deductions, or carry forward Net Interest Expenditure arising in that Tax Period.
This may be relevant for businesses funded through shareholder loans or external financing arrangements.
Compliance obligations and simplified reporting
Eligible Taxable Persons that elect to apply SBR are still required to file a Corporate Tax Return, however, they benefit from simplified Corporate Tax Return filing and compliance requirements. In addition, while transactions with Related Parties and Connected Persons must continue to comply with the arm’s length principle, eligible Taxable Persons claiming SBR are generally exempt from the obligation to prepare and maintain formal Transfer Pricing documentation.
This reduction in compliance requirements can result in significant administrative and cost savings for SMEs, particularly those that engage in related-party transaction.
Key Takeaways for UAE businesses
The extension of SBR until Tax Period ending 31 December 2029 reflects the UAE’s continued commitment to supporting SMEs, fostering entrepreneurship, and reducing the Corporate Tax compliance burden on smaller businesses. By extending the availability of the regime, the UAE has provided greater certainty and flexibility for eligible businesses as they continue to grow and develop.
Notwithstanding the benefits of the regime, eligible Taxable Person should not assume that eligibility for SBR is straightforward. Before electing to apply SBR, businesses should carefully assess whether their Revenue remains below the AED 3 million threshold, whether one-off transactions such as asset disposals could impact eligibility, and whether any exempt or non-cash income may need to be included in Revenue. Consideration should also be given to whether the eligible Taxable Person expects to incur Tax Losses or generate Net Interest Expenditure, as the relevant Corporate Tax provisions will not apply during Tax Periods in which SBR is claimed.
For many businesses, SBR will provide valuable tax simplification and cost savings. However, a detailed review of the businesses current and anticipated tax position is essential to ensure that the election aligns with its broader commercial objectives.
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The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.