Understanding Tax Loss under Corporate Tax in UAE and Its Implications for Businesses

A corporate tax loss occurs when a business’s deductible expenditure exceeds its taxable income. For founders, understanding this concept is crucial because corporate tax losses in the UAE carry forward rules allow businesses to offset losses against future profits, reducing taxable income in upcoming tax periods. However, there are restrictions: 

• Losses incurred before the date of commencement of corporate tax cannot be claimed. 

• Losses generated before a person becomes a taxable person are not eligible. 

• Losses arising from exempt income or activities under UAE corporate tax laws cannot be used. 

• Businesses that have opted for small business relief cannot claim tax loss relief for that period. 

How tax loss relief works in UAE 

A taxable person can offset carried-forward tax losses against taxable income in subsequent periods, up to a maximum of 75% of taxable income. Important points: 

• Tax losses must first be applied in the current tax period before carrying them forward. 

• Losses cannot be carried back to previous tax periods. 

• If carried forward losses are less than 75% of taxable income, all losses must be used in the current period. 

This ensures businesses maintain compliance while optimizing their UAE corporate tax position.  

Tax losses after change in ownership 

A critical factor is how ownership changes affect tax losses: 

• Losses can be carried forward if ownership changes do not exceed 50% during the period in which the loss was incurred. 

• If ownership changes exceed 50%, losses can still be carried forward if the business continues the same or similar activity. 

Transfer of tax losses between businesses 

In certain cases, tax losses can be transferred between Resident juridical persons, providing flexibility: 

• One entity owns at least 75% of the other, or a third entity owns 75% of both. 

• Both businesses share the same financial year. 

• Both prepare financial statements under the same accounting standards. 

• Neither party is an Exempt Person or Qualifying Free Zone Person. 

Transferred tax losses can reduce the recipient’s taxable income by up to 75%, ensuring tax relief while maintaining compliance with corporate tax UAE regulations.  

Understanding UAE corporate tax threshold, CT exemptions, and how corporate tax is calculated in UAE is essential for all founders. Proper management of tax losses can help: 

• Optimize taxable income 

• Reduce corporate tax liability 

• Plan for future investments 

• Handle ownership changes efficiently 

If your business incurs a tax loss, it’s important to understand the key UAE corporate tax loss carry forward rules to ensure you can benefit from tax relief effectively: 

1. Losses must arise after the date of commencement of corporate tax.  Losses incurred before the UAE Corporate Tax was implemented cannot be carried forward. 

2. Only losses incurred after becoming a taxable person qualify.  Losses from before the business became subject to UAE corporate tax are not eligible. 

3. Losses from exempt income or activities are excluded.  Tax losses generated from exempt activities under UAE corporate tax laws cannot be carried forward. 

4. Small Business Relief periods do not allow tax loss relief.  If a business opts for small business relief in a tax period, losses from that period cannot be carried forward. 

5. Losses must first be applied in the current tax period.  Before carrying forward losses, they should be used in the tax period in which they occurred as far as possible. 

6. No carry-back of losses is allowed.  Losses cannot be applied to reduce taxable income in previous tax periods. 

7. Usage limit: Up to 75% of taxable income.  In any tax period, tax losses can offset taxable income up to a maximum of 75%. 

8. Ownership change considerations: 

9. Losses can be carried forward if ownership change does not exceed 50%. 

10. If ownership change exceeds 50%, losses can still be carried forward only if the same or similar business activity is continued. 

Disclaimer: Content posted is for informational & knowledge sharing purposes only and is not intended to be a substitute for professional advice related to tax, finance, legal, compliance, or accounting. No warranty whatsoever is made in this regard, and it is not intended to provide and should not be relied on for tax/ finance/ legal/ compliance or accounting advice. The content posted is subject to future amendments / changes / clarifications in the regulation by the authorities.