UAE Corporate Tax: Will Authorities Allow Prior Year Losses to Reduce Future Taxable Income?

The UAE Corporate Tax regime will allow a business to use losses incurred (as from the UAE Corporate Tax effective date) to offset taxable income in subsequent financial periods. A loss for Corporate Tax purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.

Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met.

For groups of companies that do not meet the minimum 95% common ownership requirement or that do not want to form a tax group, the UAE Corporate Tax regime can allow a transfer of tax losses from one group company to another group company with profits, provided certain conditions are met.  

As the transfer of losses would result in a transfer of value from the loss company to the profitable company, one of the main conditions for availing group loss relief will be that the UAE group companies are at least 75% commonly owned, and no loss transfers will be allowed from companies that are exempt or that benefit from the 0% Free Zone Corporate Tax regime.  

The total tax loss offset will not be able to exceed 75% of the taxable income of the company receiving the transferred losses in the relevant period.

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Note: The information in this article is meant to provide an initial introduction to the proposed UAE Corporate Tax regime and not be used for individual or business decisions as it does not represent the final legislation by the Government. More information o the UAE Corporate Tax regime will be made available in due course.