A business may report a loss in one UAE Corporate Tax period and return to profitability in a later period. Subject to the conditions in the UAE Corporate Tax Law, an eligible Tax Loss can be carried forward and used to reduce Taxable Income in future Tax Periods.
However, accounting losses and Tax Losses are not always the same. Businesses must calculate the loss after applying the Corporate Tax adjustments, exclusions, exemptions and deduction rules. They must also observe the 75% utilisation limit and retain evidence supporting the amount claimed.
What Is a Tax Loss for UAE Corporate Tax?
A Tax Loss generally arises when the deductions allowed for Corporate Tax purposes exceed the income that is subject to Corporate Tax for the relevant Tax Period. The calculation begins with Accounting Income and is adjusted under the Corporate Tax Law.
An accounting loss shown in the financial statements is therefore not automatically the amount that can be carried forward. Non-deductible expenses, Exempt Income and other tax adjustments can change the final Tax Loss.
Can UAE Corporate Tax Losses Be Carried Forward?
Yes. An eligible Tax Loss can be carried forward and offset against Taxable Income in subsequent Tax Periods, provided the applicable conditions continue to be satisfied. The Federal Tax Authority states that unused eligible losses may be carried forward to future Tax Periods without a fixed expiry period.
Tax Losses cannot generally be carried back to reduce the Taxable Income of an earlier Tax Period.
What Is the 75% Tax Loss Utilisation Limit?
The amount of Tax Loss used in a later Tax Period cannot exceed 75% of the Taxable Income for that period before applying Tax Loss relief. This means that at least 25% of the Taxable Income remains after the loss offset, although the final Corporate Tax payable will depend on the applicable tax rates and other relevant provisions.
Practical example
A UAE company has Taxable Income of AED 1,000,000 before Tax Loss relief and has AED 900,000 of eligible losses carried forward.
- Maximum Tax Loss available for use: AED 1,000,000 × 75% = AED 750,000
- Taxable Income remaining after relief: AED 250,000
- Unused Tax Loss carried forward: AED 150,000
If the available carried-forward loss were lower than the permitted 75% amount, the available loss would generally need to be used before any remaining balance could be carried forward further.
Which Losses Cannot Be Claimed?
The Corporate Tax Law does not permit Tax Loss relief for certain amounts, including:
- Losses incurred before UAE Corporate Tax became applicable to the Taxable Person
- Losses incurred before a Person became a Taxable Person
- Losses arising from an asset or activity whose income is exempt or otherwise excluded from the Corporate Tax calculation
- Amounts that are accounting losses but do not qualify after applying the Corporate Tax adjustments and deduction rules
Businesses should reconcile the accounting result to the Taxable Income or Tax Loss reported in the Corporate Tax Return.
Ownership and Business-Continuity Conditions
For a company to carry forward and use Tax Losses, the same Person or Persons must generally continue to own at least 50% of the company from the beginning of the Tax Period in which the loss arose until the end of the Tax Period in which it is used.
If ownership changes by more than 50%, the losses may remain available where the company continues to conduct the same or a similar Business or Business Activity. Relevant factors include whether it continues using the same assets, whether the core identity and operations remain substantially consistent, and whether changes represent the development of assets, services, processes, products or methods that existed before the ownership change.
The ownership limitation does not apply in the same way to a Taxable Person whose shares are listed on a Recognised Stock Exchange.
Can Tax Losses Be Transferred Between UAE Group Companies?
A Tax Loss may be transferred between eligible UAE companies without forming a Tax Group when all legislative conditions are met. Key requirements include:
- Both companies are juridical persons and UAE Resident Persons
- There is at least 75% direct or indirect common ownership
- The required common ownership exists from the beginning of the loss period until the end of the period in which the receiving company uses the loss
- Neither company is an Exempt Person or a Qualifying Free Zone Person
- Both companies have the same Financial Year end
- Both prepare their financial statements using the same accounting standards
The receiving company remains subject to the 75% utilisation limit. The transferring company must reduce its available Tax Loss by the amount transferred.
How Are Losses Treated in a Tax Group?
Tax Groups have additional rules. Losses generated after the Tax Group is formed are generally dealt with at the Tax Group level. Losses incurred by a subsidiary before it joins a Tax Group can be used only against Taxable Income attributable to that subsidiary, subject to the relevant conditions.
Businesses considering a Tax Group should review how existing and future losses will be treated before submitting the application.
What Happens When Small Business Relief Is Elected?
A Taxable Person that elects for Small Business Relief is treated as having no Taxable Income for the relevant Tax Period. The Tax Loss relief provisions do not apply for that period. A business should therefore consider the interaction between Small Business Relief and its current or carried-forward Tax Loss position before making the election.
How Is Tax Loss Relief Claimed?
Tax Loss relief is claimed through the Corporate Tax Return for the relevant Tax Period. The return requires information about the relief claimed, transferred losses where applicable, and the remaining losses carried forward.
Businesses should maintain a Tax Loss schedule showing:
- The Tax Period in which each loss arose
- The reconciliation from Accounting Income to the Tax Loss
- Losses used in each subsequent period
- Losses transferred to or received from another company
- Ownership changes and evidence supporting business continuity
- The remaining balance available for future periods
Corporate Tax Loss Relief Checklist
- Confirm that the amount is a Tax Loss rather than only an accounting loss.
- Exclude losses connected with Exempt Income or other excluded activities.
- Check when the business became subject to UAE Corporate Tax.
- Review the 50% ownership-continuity requirement.
- Assess whether the same or a similar Business continued after any ownership change.
- Apply the 75% utilisation limit correctly.
- Review all conditions before transferring a loss between group companies.
- Maintain a detailed loss schedule and supporting records.
- Report the relief and remaining balance accurately in the Corporate Tax Return.
How Business Catalyst Consulting Can Help
Business Catalyst Consulting assists UAE businesses with Tax Loss calculations, Corporate Tax adjustments, ownership-continuity reviews, group-loss assessments and Corporate Tax return preparation.
Learn more about our UAE Corporate Tax services or contact Business Catalyst Consulting to discuss your company’s Corporate Tax position.
Official References
This article provides general information and should not be treated as legal or tax advice. Each business’s circumstances should be reviewed separately.