Not every year is a profitable year. If your business makes a tax loss, UAE corporate tax lets you use that loss to reduce tax in future years. This is called tax loss relief.
The rules are in Articles 37, 38 and 39 of Federal Decree-Law No. 47 of 2022 on Corporate Tax.
What Is a Tax Loss?
A tax loss happens when your allowed business costs are more than your taxable income in a tax period. It is based on your taxable income, not just the accounting loss in your financial statements.
Carrying Losses Forward
- A tax loss can be carried forward to future tax periods.
- There is no time limit in the law. You can carry it forward until it is used, as long as the conditions below are met.
- Losses cannot be carried back to earlier years.
- In each year, the loss you use cannot be more than 75% of that year's taxable income (before loss relief).
Simple Example
| Item | Amount (AED) |
|---|---|
| Year 1 tax loss | 2,000,000 |
| Year 2 taxable income | 1,000,000 |
| Maximum loss you can use in Year 2 (75%) | 750,000 |
| Year 2 taxable income after loss relief | 250,000 |
| Loss left to carry forward to Year 3 | 1,250,000 |
In this example, Year 2 taxable income after relief is AED 250,000. This is below the AED 375,000 band taxed at 0%, so no corporate tax is due in Year 2.
Losses You Cannot Use
- Losses from before corporate tax started for your business.
- Losses from before you became a taxable person.
- Losses from an asset or activity whose income is exempt from corporate tax.
The 50% Ownership Rule
Under Article 39, you can only use old losses if the same owners keep at least 50% ownership from the start of the loss year to the end of the year you use it.
If ownership changes by more than 50%, you can still use the losses if the business continues the same or a similar business. The FTA looks at things like using the same assets and no big change to the core business.
This rule does not apply to companies listed on a recognised stock exchange.
Transferring Losses Within a Group
Article 38 lets one company transfer its tax loss to another company in the same group, if:
- Both are UAE resident companies (juridical persons).
- One owns at least 75% of the other, or a third party owns at least 75% of both.
- This common ownership lasts from the loss year until the loss is used.
- Neither company is an exempt person or a Qualifying Free Zone Person.
- Both have the same financial year end and use the same accounting standards.
The company receiving the loss can also only use it up to 75% of its taxable income. Group deals must still follow transfer pricing rules.
Small Business Relief and Losses
If you elect Small Business Relief for a tax period, losses from that period cannot be carried forward. Think about this before choosing the relief in a loss-making year.
Keep Good Records
- Keep a loss schedule that shows each year's loss, amount used and amount left.
- Keep your shareholder register to prove the 50% ownership rule.
- Make sure losses match your financial statements and tax returns.
Unused losses are not refunded when a business closes. They only reduce future taxable income. Check this before deregistering for corporate tax.
Frequently Asked Questions
How long can I carry forward tax losses in the UAE?
The law has no time limit, as long as the ownership or same-business conditions are met.
Can I use all my losses in one year?
No. You can use losses up to 75% of that year's taxable income. The rest carries forward.
Can I carry losses back to a previous year?
No. UAE corporate tax only allows carrying losses forward.
Can a free zone company transfer losses to a mainland company?
Not if either company is a Qualifying Free Zone Person.
Official Sources
Note: This article provides general information only and is not tax advice. Confirm the current requirements with the Federal Tax Authority or a qualified tax professional.