What is a Tax Loss?
A Tax Loss occurs when your deductible business expenses exceed your taxable income during a Corporate Tax period.
Formula:
Tax Loss = Deductible Expenses − Taxable Income
This is different from an accounting loss because it is calculated after making adjustments required under the UAE Corporate Tax Law.
What is NOT considered a Tax Loss?
The following losses cannot be carried forward under UAE Corporate Tax:
- Losses incurred before 1 June 2023 (before Corporate Tax came into effect)
- Losses incurred before becoming a Taxable Person
- Losses related to exempt income
- Losses from activities that do not generate taxable income
Can Tax Losses Be Carried Forward?
Yes.
A Taxable Person can carry forward unused Tax Losses indefinitely.
However, there is an important limitation.
The 75% Rule
In any future tax period, you can offset only 75% of your taxable income using carried-forward Tax Losses.
Example
Suppose:
- Taxable Income = AED 1,000,000
- Carried Forward Tax Loss = AED 3,000,000
Maximum offset allowed:
75% × AED 1,000,000 = AED 750,000
Therefore:
- Taxable Income after relief = AED 250,000
- Remaining Tax Loss = AED 2,250,000
The remaining loss can continue to be carried forward.
Can You Choose to Use Less Than 75%?
No.
If sufficient Tax Losses are available, you must use the maximum amount allowed (75%).
You cannot intentionally preserve losses for future years.
Which Tax Losses Must Be Used First?
The order is:
- Oldest carried-forward losses
- More recent losses
If you have both:
- Your own losses
- Transferred losses from another company
You must first use your own Tax Losses before using transferred losses.
What Happens After a Change in Ownership?
If more than 50% ownership changes, restrictions may apply.
The company can continue using Tax Losses only if it continues conducting:
- the same business, or
- a substantially similar business.
Authorities may consider:
- Are the same assets still being used?
- Has the core business changed?
- Are changes simply business evolution rather than an entirely new business?
Exception
These ownership restrictions do not apply to companies listed on a Recognised Stock Exchange.
When Are Tax Losses Lost Forever?
Tax Losses may be forfeited if:
- the business changes significantly after a change in ownership,
- the company deregisters for Corporate Tax,
- or other conditions under the Corporate Tax Law are triggered.
Can Tax Losses Be Transferred Between Companies?
Yes, but only when strict conditions are met.
Conditions
Both companies must:
✅ Be juridical persons (e.g., LLCs)
✅ Be UAE Resident Persons
✅ Not be Exempt Persons
✅ Not be Qualifying Free Zone Persons
✅ Have the same financial year-end
✅ Use the same accounting standards (e.g., IFRS)
Ownership Requirement
One company must own at least 75% of the other,
OR
A third person must own at least 75% of both companies.
This ownership condition must exist from:
- the beginning of the tax period when the loss occurred
- until the end of the tax period when the loss is used.
Is There a Limit on Transferred Losses?
Yes.
The receiving company can still offset only 75% of its taxable income, including both:
- transferred losses
- its own carried-forward losses.
Can Companies Choose How Much Loss to Transfer?
Yes.
Unlike carrying forward their own losses, companies can choose how much of an eligible Tax Loss to transfer to another qualifying company.
What About Small Business Relief (SBR)?
If a business elects for Small Business Relief (SBR):
- It is treated as having no taxable income.
- No Tax Loss can arise during that period.
- Existing Tax Losses cannot be used while SBR applies.
- However, they can continue to be carried forward and used in future years when SBR no longer applies, subject to the relevant conditions.
Key Takeaways
| Topic | Rule |
|---|---|
| Carry forward Tax Losses | Allowed indefinitely |
| Maximum offset each year | 75% of taxable income |
| Pre-1 June 2023 losses | Not allowed |
| Use own losses before transferred losses | Yes |
| Choose to offset less than 75% | No |
| Transfer losses to another company | Yes, subject to conditions |
| Ownership requirement | 75% common ownership |
| Ownership change >50% | Same or similar business must continue |
| Small Business Relief | No Tax Loss generated or used during SBR |
For businesses with complex group structures, acquisitions, or accumulated tax losses, it’s advisable to seek professional advice to ensure compliance with the UAE Corporate Tax Law while maximizing the available tax relief.
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