Quick Answer
A tax loss arises under UAE Corporate Tax when a business’s deductible expenses exceed its taxable income for a tax period. Under Article 37 of Federal Decree-Law No. 47 of 2022, that loss can be carried forward indefinitely and used to offset up to 75% of taxable income in a future period, before Small Business Relief or other reliefs. Losses cannot be carried back to earlier periods. Article 38 allows losses to be transferred between group companies with at least 75% common ownership, and Article 39 blocks loss carry-forward where both ownership and the underlying business activity change substantially.
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What Counts as a Tax Loss
A tax loss is the negative result left when a taxable person’s allowable deductions and adjustments exceed its taxable income for a tax period, calculated under Corporate Tax rules rather than pure accounting profit. It is not the same figure as an accounting loss shown in a company’s financial statements, since Corporate Tax law disallows or adjusts certain items, such as 50% of entertainment expenditure or amounts exceeding the general interest deduction cap, before arriving at the taxable result. Which expenses qualify as deductible in the first place is covered in our guide to deductible expenses under UAE Corporate Tax.
The 75% Carry-Forward Cap Under Article 37
Once a tax loss is established, it carries forward with no time limit, but its use in any single future period is capped. A taxable person can offset a carried-forward loss against no more than 75% of that period’s taxable income, calculated before applying the loss relief itself. The remaining 25% of taxable income stays taxable regardless of how large the available loss balance is.
| Taxable income before loss relief | Maximum loss usable (75%) | Remaining taxable income |
|---|---|---|
| AED 500,000 | AED 375,000 | AED 125,000 |
| AED 1,000,000 | AED 750,000 | AED 250,000 |
| AED 2,000,000 | AED 1,500,000 | AED 500,000 |
Example: A trading company has AED 900,000 of carried-forward tax losses and reports AED 500,000 of taxable income before loss relief this period. Only AED 375,000 of the loss (75% of AED 500,000) can be used this period. The company pays Corporate Tax on the remaining AED 125,000, and the unused AED 525,000 of loss carries forward again to future periods.
Losses cannot be carried back. A loss incurred in one period cannot be used to reclaim tax already paid on an earlier, profitable period, unlike some other jurisdictions’ loss relief systems.
When Loss Relief Is Not Available
Article 37 blocks loss relief in three situations: losses incurred before a business became subject to Corporate Tax, losses incurred before the Corporate Tax regime itself took effect, and losses arising from income or activities that are exempt from Corporate Tax in the first place. A free zone person’s exempt Qualifying Income, for instance, cannot generate a usable tax loss.
Check: Corporate Tax Consultants in Dubai
Transferring Losses Between Group Companies Under Article 38
Article 38 lets a loss-making company transfer its tax loss to another UAE taxable person within the same group, so the profitable entity’s taxable income is reduced instead of the loss simply sitting unused. This requires at least 75% common ownership between the two companies, either one owning 75% of the other directly or indirectly, or a third party owning at least 75% of both, held continuously from the start of the loss period through to the period the loss is used. Both companies must also apply the same accounting standards. Exempt persons, Qualifying Free Zone Persons, and certain government-related and public benefit entities cannot participate in a loss transfer, and the same 75% utilization cap that applies to ordinary carry-forward also applies to a transferred loss once it reaches the receiving company.
Ownership and Business Continuity Under Article 39
Article 39 exists to stop loss-making shell companies being bought purely for their tax losses. To keep carrying forward a loss, the same person or group of persons generally needs to have continuously owned at least 50% of the company from the period the loss arose to the period it is used. Where ownership changes by more than 50%, the loss can still survive if the company continues the same or a similar business activity. Normal commercial development, such as expanding a product range or upgrading operations, does not break this test. A company that changes both its ownership beyond 50% and the fundamental nature of its business, for example converting a construction business into a real estate trading business, loses access to its pre-change tax losses. Listed companies are excluded from this restriction.
Tax Groups and Loss Relief
Businesses that have formed a Tax Group are assessed as a single taxable person, so losses and profits of group members offset automatically within the consolidated calculation rather than requiring a separate Article 38 transfer. How taxable income is calculated at the Tax Group level, including how pre-grouping losses of individual members are treated, is covered in our guide to determining taxable income of a tax group.
Frequently Asked Questions
Can UAE Corporate Tax losses be carried back to a prior profitable year?
No. UAE Corporate Tax law only allows losses to be carried forward to future tax periods, not back to reclaim tax already paid on earlier profits.
Is there a time limit on carrying forward a tax loss?
No fixed time limit applies, provided the ownership and business continuity conditions in Article 39 continue to be met.
Can a free zone company’s exempt income generate a usable tax loss?
No. Losses arising from income or activities that are exempt from Corporate Tax, including a Qualifying Free Zone Person’s exempt Qualifying Income, cannot be used for loss relief.
What ownership percentage is needed to transfer a loss to another group company?
At least 75% common ownership between the transferring and receiving companies, held continuously from the start of the loss period to the period of use, plus both companies using the same accounting standards.
Does buying a loss-making company let the buyer use its old losses freely?
Not automatically. If ownership changes by more than 50% and the company’s core business activity also changes substantially, Article 39 removes access to the losses accumulated before the change.
How much of this year’s taxable income can a carried-forward loss offset?
Up to 75% of taxable income before loss relief in that period. The remaining 25% stays taxable even where the available loss balance is larger.
Tax Consultant Dubai
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How Tax Consultant Dubai Can Help
We assess carried-forward loss positions, structure intra-group loss transfers under Article 38, and confirm whether an ownership or business change puts existing losses at risk under Article 39.
Contact Tax Consultant Dubai today to review your company’s loss carry-forward position before your next filing.
