A loss-making year is not simply a year with nothing to report for Corporate Tax purposes. Under UAE Corporate Tax Law, a genuine tax loss is an asset in its own right, one that can offset future taxable income, be transferred between related group companies, and, if handled carelessly around a change in ownership or a restructuring, be forfeited entirely.
The Federal Tax Authority issued a dedicated Basic Tax Information Bulletin on Corporate Tax Losses on 25 June 2026, and the rules it confirms are worth understanding precisely rather than approximately.
What Is a Corporate Tax Loss?
A Corporate Tax loss, or Tax Loss, arises where a taxable person’s allowable deductions and adjustments exceed its taxable revenues for a Tax Period, resulting in a negative taxable income figure for that period rather than an amount subject to tax.
Under Articles 37 to 39 of Federal Decree-Law No. 47 of 2022, a genuine Tax Loss can generally be carried forward and used to reduce taxable income in future Tax Periods, subject to specific conditions and limits.
How Tax Losses Arise
A Tax Loss follows the same calculation logic as taxable income generally, starting from accounting profit or loss, applying the required tax adjustments, and deducting any exempt income.
Where this calculation produces a negative figure, that negative amount is the business’s Tax Loss for the period. A business can report an accounting loss without necessarily reporting a Tax Loss of the same amount, since non-deductible expenses added back during the tax adjustment process can reduce or, in some cases, eliminate what would otherwise be a larger accounting loss.
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Carry-Forward of Tax Losses
Under Article 37, Tax Losses arising from Tax Periods starting on or after 1 June 2023 can be carried forward indefinitely, with no expiry date, to offset taxable income in future Tax Periods.
This carry-forward is subject to an important limit: in any single future Tax Period, a taxable person can use carried-forward Tax Losses to offset only up to 75 percent of that period’s taxable income, calculated before applying any loss relief.
The remaining 25 percent of taxable income in that period remains subject to Corporate Tax regardless of how large the available carried-forward losses are.
The FTA’s June 2026 bulletin also confirms two related mechanics. Tax Losses must be used on a first-in-first-out basis, meaning the oldest available losses are offset before more recently arising ones.
And a taxable person must apply the 75 percent cap to its fullest extent in a given period; a business cannot choose to use a smaller portion of its available losses in order to preserve more for a later period. Loss carry-back to prior periods is not permitted under UAE Corporate Tax Law.
Conditions for Using Tax Losses
Using carried-forward Tax Losses depends on satisfying continuity requirements under Article 39, designed to prevent loss-making entities from being acquired purely to shelter unrelated future profits.
The primary test is ownership continuity: the same shareholders must continue to hold at least 50 percent of the ownership interests in the business, directly or indirectly, from the period the loss arose through to the period it is being used.
Where ownership changes by more than 50 percent over that period, the loss is not automatically forfeited. It can still be used provided the business satisfies a business continuity test, continuing the same or a similar business activity following the ownership change.
A substantial change to the business’s principal activity alongside a major ownership change is what typically triggers forfeiture of previously accumulated losses. Listed companies are generally exempt from the ownership continuity test given the nature of their public shareholding structure.
Tax Loss Transfer
Under Article 38, Tax Losses can be transferred between members of a qualifying group of UAE-resident companies, subject to specific conditions, generally including at least 75 percent common ownership, direct or indirect, between the transferring and receiving entities, and matching financial year ends between them.
A taxable person receiving transferred losses is subject to the same 75 percent utilization cap on its own taxable income as applies to losses carried forward within a single entity.
The FTA’s guidance also confirms a clear order of priority: a taxable person must fully use its own carried-forward losses before using losses transferred to it from another group entity, and must fully utilize its own available losses before it is permitted to transfer any surplus losses out to another group member.
Also check: Corporate Tax Services in UAE
Restrictions on Using Tax Losses
Beyond the ownership and business continuity requirements, several other restrictions apply to Tax Loss relief. Losses arising from income that was exempt from Corporate Tax cannot be used to offset otherwise taxable income, since the underlying income was never part of the tax base to begin with. For a Qualifying Free Zone Person,
losses are effectively isolated between its two income categories: losses connected to its Qualifying Income, taxed at 0 percent, cannot be used to offset its non-qualifying income taxed at 9 percent, and losses from non-qualifying activity cannot offset Qualifying Income either.
Electing Small Business Relief for a Tax Period in which a loss arises also has a significant consequence for that loss: since a business electing Small Business Relief is treated as having no taxable income for the period, any loss that would otherwise have arisen in that specific period is not preserved for future use.
Businesses expecting a loss-making period should weigh the simplicity of Small Business Relief against the value of the loss they would otherwise be able to carry forward before electing it for that period.
Tax Losses and Tax Groups
Within a Corporate Tax Group, taxable income and losses are calculated on a consolidated basis across all group members, effectively allowing profits and losses generated by different entities within the group to offset one another automatically as part of the single group return, rather than requiring a separate loss transfer under Article 38.
Losses that existed within a company before it joined a Tax Group are generally subject to their own specific pre-grouping rules, restricting how and when they can be used against the group’s consolidated income, distinct from losses generated after the entity became part of the group.
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Tax Losses After Restructuring
Business Restructuring Relief can defer the Corporate Tax consequences of certain qualifying mergers and reorganizations, but the treatment of pre-existing Tax Losses in a restructuring depends closely on the specific transaction structure and whether the ownership and business continuity tests under Article 39 continue to be satisfied through the restructuring.
A restructuring that results in more than 50 percent ownership change, combined with a substantial change in business activity, carries real risk of forfeiting losses that had accumulated before the transaction, making it important to assess the loss position specifically before, rather than after, a restructuring is finalized.
Consider a UAE trading company with AED 1,500,000 of accumulated Tax Losses that merges into a larger group entity as part of a qualifying restructuring, with the original shareholders retaining only 30 percent of the combined entity going forward. Because ownership changed by more than 50 percent, the ownership continuity test under Article 39 fails.
Whether the AED 1,500,000 in losses survives then depends entirely on whether the combined entity continues the trading company’s original business activity in substance, rather than absorbing it into an entirely different line of business. Modelling this outcome before the restructuring is finalized, rather than after, is what allows a business to structure the transaction in a way that preserves the loss position where that is commercially achievable.
Also check: Corporate Tax Services in UAE
Documentation for Tax Loss Claims
Supporting a Tax Loss claim requires maintaining the same underlying records as any other Corporate Tax position: the financial statements and calculations showing how the loss was derived for the period it arose, and, for losses used or transferred in a later period, evidence supporting continued ownership or business activity where the continuity tests are relied upon.
Given that losses can be carried forward indefinitely, the practical record-keeping question is not simply how long records need to be kept from the year a loss arose, but ensuring the supporting evidence remains available and organized for as long as that specific loss might still be in use, which in practice can span many Tax Periods beyond the standard record retention period that applies to a single year’s return.
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Examples of Tax Loss Treatment
Example 1: The 75% cap. A business has AED 2,000,000 of carried-forward Tax Losses available and reports AED 1,000,000 of taxable income before loss relief in the current period. Under the 75 percent cap, it can offset AED 750,000 of that taxable income using its losses, leaving AED 250,000 taxable at the standard rates. The remaining AED 1,250,000 of unused losses carries forward to future periods.
Example 2: Ownership continuity. A company’s shareholders sell 60 percent of the business to a new investor group, and the company continues operating the same core business activity as before the sale. Because ownership changed by more than 50 percent, the ownership continuity test fails, but the business continuity test is satisfied since the same activity continues, so the company’s previously accumulated Tax Losses remain available for use going forward.
Example 3: Group loss transfer. A UAE Tax Group parent company holds 85 percent of a subsidiary that has accumulated Tax Losses, satisfying the 75 percent common ownership requirement under Article 38. The subsidiary can transfer its Tax Losses to another qualifying group member with a matching financial year end, subject to the same 75 percent utilization cap that would apply if the losses were used within the subsidiary itself.
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Frequently Asked Questions (FAQs)
What is a Corporate Tax loss in the UAE?
How long can Tax Losses be carried forward in the UAE?
Can UAE Corporate Tax losses be carried back?
What is the ownership continuity test for using Tax Losses?
Can Tax Losses be transferred between companies?
Does electing Small Business Relief affect Tax Losses?
Can a Qualifying Free Zone Person use its Tax Losses freely?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Tax loss relief is one part of the full Corporate Tax picture. For a complete overview of UAE Corporate Tax rates, calculation, and compliance, see our complete UAE Corporate Tax guide.
Farahat & Co. helps UAE businesses track Tax Loss positions accurately, apply the 75% utilization cap correctly, and assess ownership continuity before a share sale or restructuring.
Contact Farahat & Co. today to discuss your Corporate Tax requirements.
