30 Apr 2025
The UAE Corporate Tax framework has been designed to support innovation and economic development, particularly for startup business in UAE and small businesses. From tax reliefs for small businesses to exemptions for qualifying free zone entities, the system offers a range of benefits designed to ease the financial and compliance burden on new ventures.
However, it is essential to clarify some common myths and explore the realities of business set up in UAE and Corporate tax law UAE, focusing on what new businesses need to know.
Myths vs Reality: Corporate Tax Obligations for Startups
• Myth 1: Corporate Tax will hinder startup growth
Reality: Multiple reliefs are built to support small and growing businesses
The UAE government has implemented several relief measures to reduce the compliance burden on small businesses and encourage entrepreneurship. One of the most impactful measures is the Small Business Relief.
Key points about Small Business Relief:
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Businesses with revenue equal to or below AED 3 million for any tax period ending on or before 31 December 2026 may elect to be treated as having no taxable income.
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These businesses are not required to calculate taxable income or file a complete tax return for that period.
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Despite the relief, businesses can still carry forward unutilized tax losses and disallowed net interest expenditure for use in future tax periods when the relief no longer applies.
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However, small business relief is not available to multinational enterprises required to prepare Country-by-Country Reports and Qualifying Free Zone Persons.
• Myth 2: Companies operating in free zones are subject to full corporate tax.
Reality: Eligible businesses in free zones can access valuable tax incentives.
Free zones in the UAE continue to offer notable tax benefits for entities that qualify as Qualifying Free Zone Persons (QFZPs). These incentives make free zones an appealing option, especially for businesses engaged in qualifying activities like cross-border trade, manufacturing, or certain service-based operations, provided they meet specific conditions.
Benefits for Companies Operating in UAE Free Zones:
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A 0% UAE corporate tax rate on qualifying income.
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Under the free zone Corporate Tax UAE regime, in order to retain QFZP status, companies must maintain adequate economic substance in the UAE, prepare audited financial statements and comply with transfer pricing rules.
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Qualifying Income includes income from Qualifying Activities, such as manufacturing, logistics, or trading of goods, and transactions with other Free Zone Persons or non-UAE clients, subject to compliance with activity and substance requirements.
• Myth 3: International startups will be taxed twice
Reality: The UAE offers foreign tax credits and exemptions
The UAE’s corporate tax regime includes provisions to avoid double taxation, which is a major benefit for internationally operating businesses. It provides special provisions for international businesses. Foreign Tax Credits can be claimed for taxes paid abroad on income that is also subject to Corporate Tax in the UAE.
• Myth 4: All internal transfers within group companies are taxable
Reality: Corporate tax relief is available for transfers within Qualifying Groups
Startups that are part of a larger group or holding structure often move assets or liabilities between entities. The UAE Corporate Tax Law recognizes this operational need and offers tax relief under the "Transfers within a Qualifying Group" provision.
This allows closely related entities, such as those in a holding structure or startup group, to transfer assets and liabilities between each other without triggering a taxable gain or loss, provided certain conditions are met.
• Conditions to Qualify for Intragroup Transfer Relief:
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Entities must be resident juridical persons or non-residents with a UAE permanent establishment.
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A minimum 75% ownership relationship must exist between the entities (direct or indirect).
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Neither party should be an exempt person or a Qualifying Free Zone Person.
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Additionally, both must follow the same accounting standards and have the same financial year-end.
When these conditions are met, it allows the group to operate efficiently while managing their tax exposure responsibly.
• Myth 5: Losses in the early years of business are wasted
Reality: Tax losses can be carried forward to reduce future tax liability
It's common for startups to incur losses in the initial years. The UAE Corporate Tax system allows for tax loss relief:
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Taxable persons can carry forward tax losses to offset against up to 75% of taxable income in future periods.
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Tax Losses must be used in the current period before they can be carried forward again.
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Tax Losses cannot be carried back to previous periods.
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Under certain conditions, tax losses can be transferred to other group entities within the qualifying group.
This provision helps ensure that businesses are taxed only when they become profitable, fostering a startup-friendly environment.
With a range of startup tax benefits UAE, reliefs, exemptions, and incentives, the UAE continues to be an attractive destination for entrepreneurs and emerging businesses. By understanding UAE business tax, the obligations of the Corporate Tax regime, startups can plan strategically, remain compliant, and focus on what truly matters—growing their business.
Why AMCA is the Go-To Partner for UAE Startups
If you're a startup or planning for a business setup UAE, it’s important to stay informed and seek expert advice tailored to your structure and industry. The right guidance can turn tax rules into strategic advantages. At AMCA, we specialise in helping startups and small businesses navigate the UAE Corporate Tax landscape with confidence. Whether you're launching a new venture or expanding an existing one, our expert team is here to guide you through reliefs, exemptions, and compliance, so you can focus on scaling your business.
Book a 30-minute free consultation now and unlock the full potential of doing business in the UAE: +971 4 321 1204
