UAE Corporate Tax: How to Treat Tax Losses in UAE


In the dynamic landscape of business, losses are an unfortunate but often unavoidable reality. Economic downturns, market volatility, or even strategic miscalculations can lead to financial setbacks for companies, especially small businesses. The UAE Corporate Tax regime recognizes this reality and offers a lifeline to businesses in the form of the “loss carry forward” provision. This provision allows businesses to transfer tax losses in UAE to offset losses incurred in one period against future taxable income, providing a crucial opportunity for recovery and growth.

Understanding the Loss Carry Forward Provision

The UAE Corporate Tax introduces a forward-thinking approach to handling tax losses in UAE. If your business faces losses in a specific tax period, you can potentially use these losses to reduce your taxable income in subsequent tax periods. This provision aims to ensure consistent taxation irrespective of profit fluctuations, fostering economic stability and growth in the business landscape.

How Much Can You Offset?

Under the UAE Corporate Tax regime, businesses can carry forward losses and offset them against future taxable income. This offset is limited to a maximum of 75% of the taxable income in each of those future periods. This means that even if all accumulated losses are not fully offset, businesses are required to pay taxes on at least 25% of their taxable income. Determining the exact amount of tax losses you can carry forward can be a complex task, best undertaken with the guidance of experienced corporate tax consultants in Dubai.

The Time Frame: How Long Can You Carry Forward Tax Losses in UAE?

The flexibility of the UAE Corporate Tax regime becomes evident when considering the time frame for carrying forward losses. As per the UAE Corporate Tax Public Consultation Document, businesses can carry forward losses indefinitely. This perpetual provision offers businesses the opportunity to strategically manage their financial position over the long term.

Conditions for Indefinite Loss Carry Forward

While the prospect of indefinite loss carry forward is promising, certain conditions must be met to avail of this benefit. Corporate tax consultants in Dubai play a crucial role in helping businesses navigate these conditions. The main conditions include:

  1. Continuity of Ownership Requirement: If the same shareholder or shareholders maintain at least 50% of the share capital from the inception of the loss-incurred period to the period of loss offset against taxable income, the losses can be carried forward indefinitely. Expert corporate tax advisors can assess if your business fulfills this continuity of ownership test.
  2. Continuity of Business Requirements: Even if the continuity of ownership test isn’t met, businesses can still carry forward losses if they meet the continuity of business test. This implies that if a business undergoes a change in ownership of more than 50%, it can still carry forward tax losses in UAE if the new owners continue the same business operations.
  3. Special Conditions for Listed Companies: Listed companies on recognized stock exchanges have their unique considerations. The continuity of business or ownership tests may not be applicable to them. These businesses must await the final issuance of the UAE Corporate Tax Law to determine their eligibility for loss carry forward.
Exclusions: Tax Losses in UAE that Cannot be Carried Forward

While the loss carry forward provision is a valuable tool for businesses, certain types of losses are excluded from this benefit:

  1. Losses incurred before the effective date of UAE corporate tax (June 1st, 2023).
  2. Losses incurred before becoming a taxpayer for corporate tax purposes.
  3. Losses arising from activities or assets generating income exempt from corporate tax.
  4. Losses from activities or assets generating income exempt from UAE Corporate Tax.
  5. Losses incurred by a Free Zone Person that cannot be attributed to a Permanent Establishment (PE) in the mainland.

Expert Guidance for Successful Tax Planning

Navigating the intricate realm of corporate taxation, especially concerning loss carry forward, requires expert guidance. Alliance Prime, a trusted name in accounting and tax consultancy based in Dubai, is your partner in understanding and leveraging the UAE Corporate Tax provisions. With a team of experienced corporate tax consultants, Alliance Prime offers bespoke services tailored to your business’s unique needs. From corporate tax registration to return filing, financial statement auditing, and comprehensive tax planning, Alliance Prime has you covered.

Prepare for the future with confidence. Consult with Alliance Prime’s corporate tax advisors in Dubai today and embark on a journey of informed tax planning, financial stability, and sustainable growth. Contact us now to ensure your business thrives in the evolving landscape of corporate taxation.

Disclaimer: The information provided in this article is based on the UAE Corporate Tax regime and relevant sources available up to the knowledge cutoff date of September 2021. It’s important to note that tax laws and regulations are subject to change, and businesses should stay updated with the latest developments. Alliance Prime recommends consulting with their expert corporate tax consultants for the most accurate and current guidance.

Why is Alliance Prime the best Tax Consultancy in Dubai?

Alliance Prime is a leading provider of auditing, accounting, taxation, and advisory services in the UAE. Our expert team will guide you through the complex laws and regulations of UAE, including Corporate Tax, VAT, Excise Tax, Accounting and Bookkeeping, ESR, Financial Advisory, ERP, etc. We stay up-to-date with the latest changes in laws and regulations in the UAE. If you’re looking for reliable and professional auditing, accounting, taxation, and advisory services in the UAE, look no further than Alliance Prime. 

To find out if your business is eligible for Small Business Relief under the new CT regime or to Book a Free Consultation, contact us on: at- +971 58 825 7795 or Email us at:- contact@alliance-acc.com

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