Small Business Relief or the free zone 0%: one or the other

A small UAE company has two ways to pay little or no corporate tax, and the law does not let it hold both. Small Business Relief treats the company as having no taxable income. The free zone regime taxes qualifying income at 0%. A Qualifying Free Zone Person cannot elect Small Business Relief.

Most advice treats the free zone 0% as the default prize. For a small services company billing UAE clients, Small Business Relief is often the simpler and safer answer, and it runs to the end of 2029.

Small Business Relief, from the texts

• The basis is Article 21 of Federal Decree-Law No. 47 of 2022: a resident taxable person may elect to be treated as not having derived any taxable income for a tax period, where its revenue for that period and previous periods does not exceed the threshold set by the Minister.
• The threshold is AED 3,000,000 of revenue, in the current tax period and in every previous one (Ministerial Decision No. 73 of 2023; FTA Small Business Relief page).
• It is elected period by period (FTA).
• A Qualifying Free Zone Person cannot elect it, nor can a member of a multinational group with consolidated revenue above AED 3.15 billion (FTA).
• It was extended to tax periods ending on or before 31 December 2029 by Ministerial Decision No. 131 (Ministry of Finance announcement, 7 August 2026).

The trade-off is in Article 21(2): in a period where the relief is elected, exempt income, reliefs, deductions and tax loss relief do not apply.

The free zone 0%, from the texts

A Qualifying Free Zone Person is taxed at 0% on qualifying income and 9% on the rest above the threshold. The conditions are in Article 18 of the Decree-Law and in Ministerial Decision No. 229 of 2025 (dated 28 August 2025):

• adequate substance in the UAE
• qualifying income: from other free zone persons, or from mainland customers only for a listed Qualifying Activity (Cabinet Decision No. 100 of 2023, Article 3)
• non-qualifying revenue no higher than 5% of total revenue or AED 5,000,000, whichever is lower (Ministerial Decision No. 229 of 2025, Article 3)
• audited financial statements (Article 5(1)(b))

Transactions with natural persons are an Excluded Activity, save for a few listed financial and shipping activities (Article 2(2)(a)). Consulting, technology, design, marketing and most professional services are not Qualifying Activities. Failing any condition ends the status for that tax period and the four following ones (Article 5(2)).

Why the two cannot be combined, and the door that remains

The Federal Tax Authority's Small Business Relief page excludes Qualifying Free Zone Persons. The exclusion attaches to the status, not to the address.

Article 19 of the Decree-Law lets a Qualifying Free Zone Person elect to be taxed at the standard rates, from the start of the period of the election or of the next period. A company that makes that election no longer meets Article 18(1)(c), so it is no longer a Qualifying Free Zone Person. A free zone company can therefore choose the standard regime and, within the AED 3,000,000 limit and the other conditions, elect Small Business Relief.

Which one, by profile

• A services company with mainland or individual clients and revenue under AED 3,000,000: the 0% is mostly out of reach anyway, because that revenue is not qualifying. Small Business Relief gives zero taxable income without the de minimis cliff or the audit condition of the free zone regime.
• A company in a Qualifying Activity (trading of qualifying commodities, logistics, distribution from a Designated Zone, holding) whose customers are mainly free zone persons or abroad: the free zone 0% has no revenue ceiling and is worth the compliance.
• A company expected to exceed AED 3,000,000 soon: Small Business Relief is a short bridge. Plan the regime for the year after the threshold, not the year before.

The deadline that applies to both

Neither regime removes registration. A company incorporated in the UAE, free zone companies included, must apply for corporate tax registration within three months of incorporation (Federal Tax Authority Decision No. 3 of 2024, effective 1 March 2024). The late-registration penalty is AED 10,000 (Cabinet Decision No. 10 of 2024, Ministry of Finance).

Next step

The choice depends on the client mix and the expected revenue, both of which are known before incorporation. Send them through WhatsApp or the quote form; the calculator gives the cost of the licence that fits.