UAE Corporate Tax Losses: How Carry-Forward Rules Affect Future Planning

What is a UAE Corporate Tax loss?

An eligible Corporate Tax loss is negative Taxable Income for a Tax Period. It arises when deductible expenditure exceeds income subject to Corporate Tax after the business has adjusted its Accounting Income under the Corporate Tax rules. It is therefore a tax calculation rather than a simple copy of the accounting loss.

The calculation normally begins with the net profit or loss reported in the financial statements. Adjustments may then be needed for exempt income, non-deductible expenditure, interest restrictions, related-party transactions and other Corporate Tax provisions.

A business can therefore report an accounting loss while having no eligible tax loss. The opposite can also occur where tax adjustments produce a result that differs materially from the financial statements. The FTA defines a tax loss as negative Taxable Income computed after adjusting Accounting Income under the Corporate Tax Law.

Finance teams should maintain a separate tax-loss schedule containing:

• Accounting profit or loss for each Tax Period.
• Adjustments made for Corporate Tax purposes.
• The final eligible tax loss for the period.
• Losses used against future Taxable Income.
• Losses received from or transferred to another company.
• Losses carried forward, restricted or forfeited.
• The remaining balance associated with each Tax Period.

How can Corporate Tax losses be carried forward?

A taxable person can generally carry forward its own eligible tax losses indefinitely and use them against Taxable Income in later Tax Periods. The availability of a loss does not create an unrestricted deduction. The taxpayer must apply the utilisation limit, use the oldest losses first and continue satisfying the relevant legal conditions.

The FTA’s June 2026 bulletin confirms that there is no fixed expiry period for eligible carried-forward losses. It also states that the oldest losses are applied before more recent losses and that available losses must be used to the fullest permitted extent.

This means management cannot simply hold back an available loss because the company expects a more profitable year later. The loss should be applied in accordance with the required utilisation order.

What does the 75% utilisation limit mean?

Carried-forward and transferred tax losses can generally offset a maximum of 75% of Taxable Income calculated before tax-loss relief for the relevant period. A profitable company may therefore retain taxable income even when its accumulated eligible losses are greater than the profit generated during that year.

The limit applies to the total relief used from the taxpayer’s own losses and eligible losses transferred from another taxable person. A business must first use its own carried-forward losses before using transferred losses.

For budgeting purposes, the basic calculation is:

Maximum permitted loss relief = Taxable Income before loss relief × 75%

The actual deduction is typically the lower of:

1. The eligible loss balance available.
2. Seventy-five per cent of Taxable Income before loss relief.

A tax loss is useful only when the business can calculate it correctly, support it with records and preserve it through future commercial changes. — KPM Global Services UAE consultant observation

How does the carry-forward calculation work in practice?

Assume a UAE company has AED 1 million of Taxable Income before tax-loss relief and AED 3 million of eligible losses carried forward. The maximum loss deduction is AED 750,000, leaving AED 250,000 of Taxable Income and AED 2.25 million of losses available for future periods.

The calculation would be recorded as follows:

• Taxable Income before loss relief: AED 1,000,000.
• Eligible losses available: AED 3,000,000.
• Maximum offset at 75%: AED 750,000.
• Taxable Income after relief: AED 250,000.
• Remaining carried-forward losses: AED 2,250,000.

The company cannot elect to use only AED 500,000 to preserve additional losses for a later year. The FTA’s bulletin states that the AED 750,000 amount must be used in this example because available carried-forward losses must be offset to the fullest permitted extent.

Example 1:

A fictional Dubai mainland trading company records eligible Corporate Tax losses during its first two Tax Periods. Sales improve in the third period, and the management forecast assumes that all taxable profit will be absorbed by the accumulated losses.

The accounting team identifies that the 75% restriction will leave part of the company’s pre-relief Taxable Income exposed to Corporate Tax. Management revises its cash-flow forecast before committing the expected funds to new inventory.

Which losses cannot be carried forward?

Losses arising before the UAE Corporate Tax regime became effective, before a person became taxable, or from activities that do not generate Taxable Income are not eligible Corporate Tax losses. An accounting loss should therefore not be added to a tax-loss register without confirming its period, source and tax treatment.

The UAE Corporate Tax regime applies to financial years beginning on or after 1 June 2023. The relevant first Tax Period depends on the company’s financial year. For example, a calendar-year business generally entered the regime from 1 January 2024.

The FTA identifies the following exclusions:

• Losses incurred before Corporate Tax came into effect.
• Losses incurred before the person became a Taxable Person.
• Losses connected with activities that do not produce Taxable Income.
• Losses associated with Exempt Income.

Historic retained losses and accumulated accounting deficits may still be commercially relevant, but they should not be presented as available Corporate Tax relief without a supporting tax reconciliation.

How can an ownership change restrict tax losses?

Where more than 50% of the direct or indirect ownership interests in a taxable person change, carried-forward losses may become restricted. The losses may remain usable where the taxable person continues conducting the same or a similar Business or Business Activity after the ownership change.

The ownership comparison runs from the beginning of the Tax Period in which the loss arose to the end of the Tax Period in which the loss is used. The restriction does not apply to a taxable person whose shares are listed on a Recognised Stock Exchange.

When considering whether a business remains the same or similar, relevant factors include:

• Whether some or all of the same assets continue to be used.
• Whether the core identity or operations have changed significantly.
• Whether later changes developed from products, services, processes, methods or assets that existed before the ownership change.

Tax losses should therefore not be valued as though they were cash during an acquisition, investment round or family-business succession. Their value depends on future taxable profitability, the 75% limit and continued compliance with the ownership and business-continuity requirements.

Example 2:

A fictional UAE investor acquires 70% of a loss-making technology company and plans to discontinue its software activity in favour of an unrelated property service.

Before assigning value to the target’s accumulated tax losses, the investor obtains a review of the ownership change and proposed operational shift. The review identifies a material risk that the losses may not remain available because the same or a similar business may not continue.

Can tax losses be transferred between UAE companies?

Eligible tax losses may be transferred between qualifying taxable persons, but the transfer is subject to detailed conditions. It is not enough for the companies to share directors, operate under one brand or have common commercial interests. The legal ownership, residence, tax status and accounting conditions must be satisfied.

The principal conditions include:

• Both taxable persons must be juridical persons.
• Both must be UAE Resident Persons.
• One must own at least 75% of the other, or the same single person must own at least 75% of both.
• The required ownership relationship must exist for the prescribed period.
• Neither company may be an Exempt Person.
• Neither company may be a Qualifying Free Zone Person.
• Their Financial Years must end on the same date.
• Both must use the same accounting standards.

The receiving company remains subject to the overall 75% utilisation limit. Losses cannot be transferred to or from a natural person or a Non-Resident Person, including a UAE Permanent Establishment of a foreign company.

A company may choose the amount transferred, subject to the applicable restrictions. Any unused balance can generally remain with the company that incurred the loss and continue to be carried forward.

How does Small Business Relief affect tax losses?

A qualifying Resident Person that elects for Small Business Relief is treated as having no Taxable Income for the relevant Tax Period. As a result, no Corporate Tax loss arises during that period, and existing losses cannot be used or transferred while the relief applies.

Existing eligible losses from periods in which Small Business Relief did not apply may continue to be carried forward. They may potentially be used in a later period when the relief is not elected, subject to the normal conditions.

The FTA states that the relief requires an election for each relevant Tax Period and generally requires revenue not exceeding AED 3 million in the current and all previous applicable Tax Periods. A Qualifying Free Zone Person cannot elect for the relief.

Businesses should compare the immediate benefit of the election with its effect on current and accumulated losses. The appropriate decision depends on the entity’s revenue history, expected profitability, existing losses and wider Corporate Tax position.

What common mistakes do business owners make?

Common tax-loss errors usually begin with incomplete Accounting or assumptions made during budgeting and transactions.

• Treating the financial-statement loss as the final Corporate Tax loss.
• Including losses from periods before the company entered the Corporate Tax regime.
• Assuming carried-forward losses can eliminate all future Taxable Income.
• Ignoring the 75% utilisation restriction in cash-flow forecasts.
• Using recent losses before older eligible balances.
• Failing to review indirect ownership changes.
• Assigning a guaranteed value to losses during an acquisition.
• Assuming companies under common management can automatically transfer losses.
• Overlooking the effect of Small Business Relief.
• Failing to retain evidence supporting the original calculation and later utilisation.

What documents should a business prepare?

A defensible tax-loss position requires more than a figure carried forward in a spreadsheet. Businesses should maintain a consistent file covering the original loss, later changes and every utilisation decision.

The preparation checklist should include:

1. Financial statements for each relevant Tax Period.
2. General ledgers and supporting transaction records.
3. Reconciliations from Accounting Income to Taxable Income.
4. Schedules of exempt income and non-deductible expenditure.
5. Interest-deduction and related-party calculations where applicable.
6. A tax-loss register showing balances by Tax Period.
7. Evidence of how the oldest losses were applied.
8. Share registers and direct or indirect ownership records.
9. Transaction documents for investment rounds, disposals and restructurings.
10. Evidence that the same or a similar business continued after an ownership change.
11. Small Business Relief elections and supporting revenue calculations.
12. Documentation supporting any transfer of losses between companies.
13. Corporate Tax returns and related working papers.

The FTA states that Taxable Persons and relevant Exempt Persons must retain the required Corporate Tax records for at least seven years following the end of the Tax Period to which they relate.

How can KPM Global Services UAE assist?

KPM Global Services UAE can support businesses with the practical Accounting, Tax and Financial work required to establish and monitor a Corporate Tax loss position.

Depending on the business and the available records, the work may include:

• Reconciling accounting losses to Corporate Tax losses.
• Preparing and maintaining a tax-loss register.
• Reviewing the 75% utilisation calculation.
• Assessing ownership and business-continuity risks.
• Reviewing eligibility for loss transfers between UAE companies.
• Comparing Small Business Relief with the treatment of existing losses.
• Supporting tax-loss due diligence for investments and acquisitions.
• Organising supporting records for return preparation and future review.
• Incorporating expected loss utilisation into tax and cash-flow forecasts.

The purpose of this review is not to guarantee that losses will be accepted or available. It is to help management identify the conditions, evidence and commercial assumptions affecting the position before a return or transaction is finalised.

A practical planning view

UAE Corporate Tax losses can provide future relief, but businesses should treat them as conditional tax attributes rather than guaranteed savings. Their value depends on correct calculation, future profitability, the annual utilisation ceiling, ownership continuity, business activity and supporting documentation.

A verified tax-loss register should form part of the company’s wider Accounting and Corporate Tax process. It should also be reviewed before a share sale, restructuring, Small Business Relief election, liquidation or Corporate Tax deregistration.

Early review gives management a more realistic view of future liabilities and reduces the risk of making investment or cash-flow decisions based on losses that may be restricted or unavailable.

This article is for informational purposes and does not constitute legal, tax, accounting, or financial advice.