Transfer of Corporate Tax Losses under UAE Tax Law

If your business in the UAE makes less money than it spends in a certain period (tax period), that's called a tax loss. This guide explains how CorporateTax Losses work in the UAE and what you can do with them.

What is a Tax Loss?     

Imagine your business income for a period is AED 100,000 and your expenses are AED 120,000. In this case, you have a tax loss of AED 20,000 (120,000 - 100,000).

Using CorporateTax Losses to Reduce Future Taxes

The good news is that you can use tax losses to reduce your taxes in future periods. This is called "carrying forward" your tax loss. It's like saving your loss to use against future profits, lowering your overall tax bill.

There's a Limit, Though

There's a catch: you can only use up to 75% of your taxable income in any future period to offset your tax loss. Let's say you have a tax loss of AED 20,000 and your future taxable income is AED 40,000. In this case, you can use AED 30,000 (75% of 40,000) of your tax loss to bring your taxable income down to AED 10,000 (40,000 - 30,000). You'll still have AED 10,000 (20,000 - 30,000) of tax loss left to carry forward to the next tax period.

Keeping Your Business Going Matters

There are also some rules about how long you can carry forward a tax loss. You can generally only do this if your business continues to operate in a similar way. Imagine you run a clothing store and you make a loss. You can carry forward that loss if you keep running a clothing store, even if you change the location or name. But if you start selling something completely different, like electronics, you might not be able to use your old tax loss.

Exceptions to the Rules

There are some exceptions to these rules. For example, if your business is listed on a recognized stock exchange, you can carry forward your tax loss even if you make big changes to your business.

Thinking of Buying a Business with Tax Losses?

If you're thinking of buying a business with Tax losses, be careful. You might not be able to use those losses unless the business keeps operating in a similar way.

How Can Resyon Badger Help?

Tax laws can be complicated. If you have questions about CorporateTax losses or anything else related to UAE corporate tax, it's always a good idea to talk to a tax advisor. 

Reyson Badger offers highly knowledgeable and experienced tax consultants in the UAE, dedicated to providing clients with top-tier Corporate Tax services. Our expertise ensures that clients remain compliant with the Tax Authority laws and regulations.