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What are “Tax Losses” under UAE Corporate Tax ?

A business’s loss during a particular tax year is referred to as a tax loss under the corporate tax laws. It happens when revenue (taxable income) is less than expenses or deductions (permitted by tax law), leaving a net loss. Future taxable income is used to offset the resulting tax loss. These are known as carry-forward tax losses since the tax losses are offset later. Additionally, a company may deduct its tax losses from its profits from prior years; however, the UAE currently prohibits this.

Relief from tax losses under the UAE corporate tax 

A tax loss may be deducted from future tax periods’ taxable income under Article 37 of the tax code. Businesses will be able to lower their taxable income as a result, which will reduce their tax obligation in the end. It is important to remember that a company can deduct tax losses in any succeeding tax period to the extent that they exceed 75% of the taxable income (before tax loss relief).

The carry forward tax loss will only offset that period to a later tax period. Should there be any leftover tax loss, the company should carry it over to the following period. If any tax losses are transferred under Article 38 of the tax law, carryforward tax losses are offset first. To have better clarity on the tax losses, tax consultants in Dubai should be approached.

Conditions in which it is not possible to get a tax loss relief

There are conditions in which tax loss relief cannot be availed, as explained below:

  • If a company experiences losses before the corporate tax regime takes effect.
  • When a company experiences losses before the corporate tax law treats it as a taxable entity.
  • When the loss results from a resource or activity that the decree-law exempts.

Transfer of tax losses in the UAE

 A taxable person may transfer their tax losses to another person following Article 38 of the tax code. Nonetheless, there are requirements that businesses or individuals subject to taxes must fulfil. The prerequisites are:

  • Both companies are legitimate businesses.
  •  Both companies are locals.
  • A direct or indirect ownership interest of at least 75% in the other entity is held by one of the taxable entities. Alternatively, a third party owns at least 75% of both companies’ direct or indirect equity.
  • Until the end of the tax period, when the other taxable entity offsets the tax loss against its taxable income, the shared ownership indicated in point (3) must exist during the whole tax period in which the tax loss occurs.
  • All of the entities are subject to taxes.
  • No entity meets the requirements to be a person in a qualifying free zone.
  • The fiscal year-end date is the same for both entities.
  • Both entities adhere to the same accounting standards when preparing their financial statements.

However, tax loss offset cannot exceed the maximum allowed by Article 37 of the tax code and a taxable person whose shares are listed on a Stock Exchange is not eligible for the transfer of tax losses.

Businesses can deduct their corporate tax losses from their future taxable income. However, for tax loss relief to be applicable, businesses must fulfil a few requirements. Companies with tax losses can carry them to the next tax year and deduct them from their taxable income. Specific rules and restrictions nevertheless constrain it. The corporate tax law permits entities to transfer tax losses amongst themselves, subject to specific requirements. 

Read more: What expenses are deductible under UAE corporate tax?

How Tax Consultants in Dubai Can Assist

For businesses aiming to navigate the complexities of UAE corporate tax law and optimize their financial strategies, including leveraging tax losses, engaging the services of tax consultants in Dubai can prove beneficial. With their knowledge of local regulations, these consultants provide essential insights into the most effective methods for recouping tax losses. These professionals conduct a comprehensive assessment of your company’s financial position, identify applicable tax deductions, and aid in the development of a robust tax planning strategy. Additionally, they play a key role in helping you maximize potential tax benefits by guiding you through the process of carrying forward tax losses to offset future taxable income. When considering collaboration with Dubai tax consultants, it is advisable to select seasoned experts well-versed in UAE tax laws and possessing a track record of assisting companies in related industries. Adopting this proactive approach ensures compliance with local tax laws and enhances the effective management of your finances. Thus, contact us today and we shall be glad to assist you.

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more