The UAE Ministry of Finance and Federal Tax Authority published clarifying guidance this month on how the AED 3M small-business relief election sits next to the free-zone Qualifying Income regime. Two reliefs, one election, plenty of room to misfile.
What changed in plain language: a free-zone company that elects small-business relief still needs to prove its qualifying income split, even when the election zeroes out the tax. The FTA expects the working papers, not the conclusion. Trading companies invoicing both inside the UAE mainland and outside are the most exposed to a wrong filing.
What this means for our clients
If you are a free-zone entity with mixed customers (some UAE mainland, some international, some other free-zone), we are now asking three things of every client during the FY2026 close: a per-customer revenue split for the Qualifying Income test, a written transfer-pricing position for any related-party flows, and a decision on whether to elect the AED 3M relief at all. Most one-and-two-person consulting LLCs we work with land at the same answer — elect the relief — but that's not automatic.
The cost of getting this wrong is not the AED 9% on a missed slice; it is the loss of the 0% Qualifying Income status itself, which the FTA can claw back for up to five years. We model the working papers in our annual tax retainer; if you do not have a retainer in place yet, this is the cycle to start one.
Read the original guidance via the Ministry of Finance and FTA news pages linked below, then book a 30-minute review with our tax team if you want a position confirmed in writing before your accountant files.