What 9 % really costs you.

How this is calculated

The first AED 375,000 is a band, not a cliff edge

This is the single most misunderstood number in the whole system. At AED 400,000 of taxable income you do not pay 9 % on 400,000. You pay 9 % on the 25,000 above the threshold, which is AED 2,250. The law says so in as many words: Article 3(1)(a) charges 0 % on “the portion of the Taxable Income not exceeding” the threshold, and Cabinet Decision No. 116 of 2022 repeats the phrase. The FTA's own worked example arrives at AED 191,250 on income of 2,500,000, which is exactly (2,500,000 − 375,000) × 9 %.

That is why your effective rate is almost never 9 %. At half a million it is 2.25 %, at one million 5.63 %, at five million 8.33 %. It approaches nine per cent and never reaches it. The band applies once per taxable person, no matter how many businesses you run, and splitting a company to claim it twice triggers the general anti-abuse rule.

Small Business Relief

Revenue up to AED 3,000,000 lets you elect to be treated as having no taxable income at all. The test is revenue, not profit, so a high-turnover low-margin trading business is shut out while a small consultancy with fat margins is not. The relief now runs to tax periods ending on or before 31 December 2029, extended by Ministerial Decision No. 131 of 2026.

Two things worth knowing before you elect. The relief is not free: the period's losses and net interest expense are forfeited and cannot be carried forward. And below roughly AED 375,000 of income it saves you nothing anyway, because the zero-rated band already does the job. Registration remains compulsory either way, and the election is made in the return. Miss it and it is gone for that period.

Note that the FTA guide published on tax.gov.ae still gives the old end date of 31 December 2026. It has not been updated since August 2023, so anyone quoting it is quoting superseded law.

Free zone: the de minimis limit and the five-year trap

A qualifying free zone person pays 0 % on qualifying income and 9 % on the rest, with no exempt band at all. Non-qualifying revenue is tolerated up to a de minimis limit of the lower of 5 % of total revenue and AED 5,000,000. Above roughly AED 100 million of revenue, the five million cap always binds.

Cross that limit and the status is lost for the current tax period and the four that follow. Five years. It is the harshest single consequence in the law, and the usual way companies stumble into it is selling to private individuals: almost every transaction with a natural person is an excluded activity, with narrow exceptions for ships, aircraft leasing, fund management and wealth management.

The governing rule is Ministerial Decision No. 229 of 2025. Its predecessor, Ministerial Decision No. 265 of 2023, was repealed with retroactive effect to 1 June 2023. A large number of advisory articles still cite the old decision.

Losses

Tax losses can offset at most 75 % of a year's income, measured before the offset. There is no time limit on carrying them forward, which is unusual by European standards, and there is no carry-back. A change of more than half the ownership breaks the carry-forward unless the same or a similar business continues.

What this tool does not do

• It takes your taxable income as given. Getting from accounting profit to taxable income is the actual work: exempt dividends, the participation exemption, non-deductible expenses, the interest limitation rule and transfer pricing adjustments all sit in that step.
• It does not test whether your activities qualify in a free zone, only what happens once you tell it how much does not.
• It ignores Pillar Two. Groups with consolidated revenue of EUR 750 million or more in at least two of the four preceding years face a domestic minimum top-up tax of 15 %.
• Where the law is genuinely unsettled, it shows the higher figure. A company that has lost free zone status does not get the AED 375,000 band here, because no FTA source confirms that it should.