Tax Loss Relief in UAE Corporate Tax: How It Works and Why It Matters
Not every year ends with a profit. Some businesses, especially new ones or those in capital-heavy sectors, go through tough phases. That is expected. The good news is that UAE Corporate Tax allows businesses to carry forward their losses and use them to reduce tax in future profitable years. This is called Tax Loss Relief.
Whether you run a startup finding its feet or a large company with seasonal income swings, knowing how to manage tax losses the right way can bring real long-term value.
What Counts as a Tax Loss?
A tax loss happens when your adjusted taxable income for a year falls below zero. This is not the same as an accounting loss. You must first apply all relevant tax rules, this includes removing exempt income, adding back disallowed expenses, and considering any deductions to arrive at your adjusted number.
For example, if your financial statement shows a loss of one million dirhams, but that includes personal expenses or non-deductible items, your tax loss might be less once these are removed. Only the final adjusted figure matters.
When Can You Claim Tax Loss Relief?
To benefit from tax loss relief, the following conditions must be met:
- The business that incurred the loss must be the same one claiming the relief in the future.
- If there is a change in ownership of more than 50 percent, the business must continue operating the same or a very similar activity to still claim its past losses.
- All losses must be properly reported in the tax return for the year they occurred.
If any of these points are missed, the loss may not be accepted later by the Federal Tax Authority.
Carrying Losses Forward
Once recorded correctly, losses can be carried forward into future tax periods. This means that when your business starts earning taxable profits, you can reduce those profits by the amount of unused tax loss up to a certain limit.
Here’s how it works:
Let’s say you had a tax loss of 400,000 dirhams in 2024. In 2025, your adjusted taxable profit is 600,000 dirhams. You can use your past loss to bring your 2025 taxable income down to 200,000 dirhams. That reduces how much tax you owe.
This system helps smooth out your tax bills across different years and gives growing businesses a better chance to manage cash.
Group Companies: Can You Share Losses?
Yes, the Corporate Tax law allows for tax losses to be transferred between companies in the same group, under strict rules. This is possible if:
- There is at least 75 percent common ownership
- Both companies are subject to Corporate Tax and not exempt
- Neither company is benefiting from the zero percent rate as a Qualifying Free Zone Person
In simple terms, a parent company can use a loss from one of its subsidiaries to reduce its own tax bill. This is useful for groups with multiple operations, where one part may struggle while another succeeds.
However, losses cannot be transferred to exempt persons or to companies that fall under zero percent Free Zone rules. And again, all tax filings must clearly document the transfer.
Limits on Using Losses
There are a few key restrictions to keep in mind:
- You cannot use tax losses to offset income that is already exempt from tax
- Personal investment income or non-business income cannot be reduced using business tax losses
- You must maintain proper records and attach the correct schedules to your tax return
Also, losses cannot be carried forward forever. While the law does not specify a time limit yet, it is expected that rules may evolve. Keeping clean records now ensures you can make full use of your losses later.
Keeping Your Records Straight
When you report a tax loss, it must be supported by clear, traceable documentation. This includes:
- Financial statements prepared on a proper basis
- Adjustments for tax rules (non-deductible costs, exempt income, etc.)
- Working papers showing how the loss was calculated
- Schedules for depreciation, interest limits, or disallowed expenses
If the FTA audits your return, they will ask for all this. Being organized not only makes the process easier, but it also increases your chances of using the loss in future years without issue.
Why Tax Loss Relief Matters
Tax Loss Relief is more than just a benefit for hard times. It is a planning tool. It allows you to:
- Lower future tax bills
- Improve cash flow when profits return
- Align tax treatment across group entities
- Show stakeholders a long-term strategy
For businesses that experience seasonal ups and downs, or invest heavily in growth, this relief smooths the journey and avoids tax spikes in good years that follow rough ones.
Frequently Asked Questions
Can tax losses be carried forward forever?
At present, the law does not set an expiry date. But businesses should track them carefully in case future updates introduce limits.
Can I offset tax losses against personal investment income?
No. Only business income can be reduced by business losses.
If my company is sold, can the new owner use the old losses?
Only if the core business activity remains the same and ownership change is below 50 percent.
Are Free Zone businesses allowed to use tax losses?
Only if they are taxed at the regular rate. Companies under the zero percent Free Zone regime cannot apply tax losses.
What if I forget to report a loss in my return?
If you do not declare the loss properly, you might not be able to use it later. Always report it in the original filing.
Can losses be shared across companies in a group?
Yes, but only if both are taxable, share 75 percent ownership, and are not exempt or zero rated.
Is this the same as accounting losses?
No. Tax losses are calculated differently and must reflect tax law adjustments. Do not rely only on financial statements.
