Corporate Tax – Losses

Frequently Asked Questions

Tax losses refer to situations where a business’s total allowable deductions exceed the total taxable income for the applicable tax period, leading to negative taxable income for corporate tax purposes.

Tax losses can be utilized, subject to specific conditions to offset against future periods’ taxable income, limited to a maximum of 75% of the taxable income for each subsequent period. Any remaining unused tax losses get carried forward indefinitely and applied against taxable income in future tax periods.

As an example, let’s assume a taxpayer has a taxable income of AED 100,000 and carried forward losses amounting to AED 125,000. During the applicable tax period, AED 75,000 of the carried forward losses can be utilized as an offset (calculated as 75% of AED 100,000), thereby leading to a taxable income amounting to AED 25,000. The remaining amount of tax losses available forward to future tax periods would decrease to AED 50,000 (AED 125,000 – AED 75,000).

Tax losses can be carried forward without any restrictions if the same individual or group of individuals maintains ownership of at least 50% of the entity with the losses. However, if there is a change in ownership exceeding 50%, the tax losses can still be carried forward as long as there are no significant alterations in the nature or operation of the entity’s business.

Tax losses incurred by one UAE group company can be utilized to offset the taxable income of another UAE group company, provided there is common ownership of 75% or more and certain additional criteria are satisfied. It is important to note that tax loss transfers are not permitted from companies that are exempt from taxation or that benefit from the 0% Free Zone Corporate Tax regime.

To transfer tax losses within a group in the UAE, the following conditions must be met:

  • Both companies involved must be juridical person residents in the UAE.
  • Either one company owns 75% or more of the other, or a third party owns 75% or more of both companies, and this ownership exists throughout the Tax Period in which the loss was incurred.
  • Neither company is classified as an Exempt Person for tax purposes.
  • Both companies do not qualify as Qualifying Free Zone businesses.
  • The financial statements of both companies must be prepared using the same accounting standards and have the same financial year.

Meeting these conditions allows for the transfer of tax losses between the companies within the group in the same Tax Period.

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