The implementation of the Federal Corporate Tax law in the UAE has many advantages for both the state and businesses within the state. However, many struggling businesses are still concerned about the effect Corporate Tax is going to have on their profits and their ability to survive in a competitive market.
We have discussed in a previous post how small businesses can apply for Corporate Tax relief. However, small business relief is not the only clause in the Corporate Tax Law that facilitates different businesses at various stages of their growth cycle.
We asked the professionals at Am Audit and they gave us some insight into tax losses and how they can be applied to the Corporate Tax imposed on businesses within the UAE. So, without any more delay, in this post we will be covering what tax losses are and how they can be applied to the taxable income of eligible businesses.
What are Tax Losses?
In alignment with the Federal Corporate Tax Law, tax losses occur when the deductibles of a business and cost of operations exceed the taxable income or revenue of said business. Tax losses in respect to Corporate Tax can be carried forward to future tax periods under certain conditions. Therefore, tax losses earned by a business can be used to offset some of the future taxable income earned.
How Tax Losses apply to Taxable Income
Now that we have covered what tax losses are, the FTA will allow businesses within UAE to offset up to 75% of their taxable income using tax losses from previous years unless:
- The business losses were incurred before the commencement of UAE Corporate Tax
- The business losses were incurred before the business became taxable under Corporate Federal Law
- The business losses were incurred from an entity or business activity that is exempt from Corporate Tax
Additionally, a business can carry forward its tax losses even if there is a change in ownership if the same person continues to own at least 50% of the company shares. In case there is a change in ownership of more than 50%, the business can still carry forward its losses given that the nature of the business or its activity has not drastically changed.
Furthermore, it can be transferred and utilized within a company group given that they meet the following conditions:
- Either business parties have a minimum of 75% shares in the other business, or a third party owns both businesses with a minimum of 75% shares in each.
- The common ownership of both business parties has to be established from beginning to end of the tax period where losses are incurred.
- Neither of the businesses who wish to transfer losses are exempt from it or a Qualifying Free zone Person.
- Both businesses share the same financial year.
- Both businesses use the same accounting standards.
Grow Your Business with AM Audit
Growing your business during fierce competition and new tax regulations can make your head spin. At Am Audit, we understand the value of your time and hard work you pour into your business. Stay focused on outgrowing your competitors and leave the paperwork to our professionals by choosing Am Audit’s Services including Auditing, Accounting, Consulting, and Corporate Tax Services.
