With the introduction of UAE Corporate Tax at a standard rate of 9%, companies operating in the UAE are entering a new era of tax compliance and strategic financial planning. One of the most effective and often underutilized tools available is the ability to carry forward tax losses.
In this comprehensive guide, we will explore what tax losses are, how the carry forward mechanism works, provide practical examples, outline eligibility conditions, and explain how it can significantly benefit your business.
A tax loss arises when a company’s deductible business expenses exceed its taxable income in a financial year. Rather than seeing this as a setback, the UAE tax regime allows businesses to transform these losses into a valuable future tax asset by carrying them forward to offset against future profits.
The UAE Corporate Tax Law allows businesses to carry forward tax losses indefinitely. These losses can be used to offset up to 75% of taxable income in future years.
This means that even if your business experiences an unprofitable year now, you can reduce your future tax bills when the business returns to profitability.
Indefinite Carry Forward: Losses can be carried forward without a time limit.
Offset Limit: Up to 75% of taxable income in any future year can be offset using carried forward losses.
Tax Savings: At the 9% corporate tax rate, reducing taxable income through loss offsets can translate into significant savings.
Year 1:
Tax loss: AED 2,000,000
Year 2:
Taxable income: AED 1,000,000
Maximum allowable offset: 75% of AED 1,000,000 = AED 750,000
Remaining taxable income: AED 1,000,000 – AED 750,000 = AED 250,000
Tax payable at 9% on AED 250,000: AED 22,500
Remaining carried forward loss: AED 2,000,000 – AED 750,000 = AED 1,250,000
The unused AED 1.25 million loss can be further carried forward to future years, continuing to reduce tax liabilities.
The UAE Corporate Tax regime also allows for group relief, enabling companies within the same group to transfer tax losses to each other.
At least 75% ownership of the subsidiary or group entity.
Both entities must be UAE tax residents and subject to corporate tax.
Neither entity should be exempt or restricted from using losses.
This approach optimizes the group’s overall tax position, improves cash flow, and supports reinvestment strategies.
While the carry forward mechanism offers significant benefits, certain conditions must be satisfied:
If there is a change of more than 50% in direct or indirect ownership, the ability to utilize carried forward losses may be affected.
The same or similar business activities must generally continue for the losses to remain eligible for offset.
Losses from exempt income, such as qualifying free zone activities, cannot be carried forward.
Losses from foreign branches may not be eligible if they are not taxed under UAE corporate tax.
Proper documentation is critical to successfully utilizing carried forward losses:
Maintain audited financial statements.
Keep detailed tax computation records.
Submit accurate and timely tax returns to the Federal Tax Authority (FTA).
Failure to maintain adequate records can result in disallowance of losses during audits, leading to higher tax liabilities.
Effectively managing tax losses provides multiple advantages:
Reduce future tax burdens at the 9% rate.
Enhance cash flow, supporting reinvestment and growth.
Stabilize financial forecasting and long-term planning.
Increase investor and stakeholder confidence by demonstrating proactive and strategic tax management.
By understanding and strategically applying the carry forward of losses, UAE businesses can transform temporary financial setbacks into long-term advantages. This reduces corporate tax liabilities at the 9% rate, strengthens financial resilience, and supports sustainable growth.
Effectively leveraging tax loss carry forward provisions can significantly improve your company’s financial position over time. However, compliance with detailed conditions and careful planning are essential to maximize these benefits.
At AM Audit, we help UAE businesses design and implement tailored tax strategies that meet regulatory requirements and maximize potential tax savings.
Ready to turn today’s losses into tomorrow’s opportunities? Connect with our team to discuss your corporate tax strategy.
AM Audit ® professionals are CPAs, Emirati Owned Auditing & Accounting firm
© 2025. AM Audit. All Rights Reserved.
