UAE Corporate Tax: How Tax Losses Work and When You Can Use Them

A loss-making year is not wasted for tax. The loss carries forward and can reduce tax in later years. That does not mean you get the full amount back, and the loss can disappear if the shareholding changes in the wrong way. Our corporate tax services in the UAE include tracking loss balances across periods, so nothing goes unclaimed.

This article explains the offset cap, the ownership tests, the losses that never qualify, and the election that blocks loss use altogether.

What a tax loss is

A tax loss is not the same as an accounting loss. Start with the accounting result, apply the adjustments required by law, and the negative figure left over is the tax loss for that period.

That amount stays on the return as a balance. It does not trigger a refund. It waits for a later period with taxable income, then reduces that income.

The 75% cap

Here is the rule that catches most owners by surprise. The Corporate Tax Law limits how much of a later year’s income a loss can offset. Under Article 37 of Federal Decree-Law No. 47 of 2022, the amount used in a period cannot exceed 75% of the taxable income for that period.

So even a profitable year still leaves at least a quarter of its income exposed to tax. A large brought-forward loss cannot wipe out a future bill completely.

Any unused loss remains on the balance and carries into the next period, where the same 75% ceiling applies again.

A worked example

Take a Dubai company with a tax loss of AED 900,000 from its first period.

The next period produces taxable income of AED 800,000. The most the company can use is 75% of that, or AED 600,000. Taxable income falls to AED 200,000. That amount sits below the AED 375,000 threshold, so the effective bill for the year is nil at the 0% band. Tax only bites above that threshold, under the corporate tax rate in the UAE.

AED 300,000 of the loss remains on the balance and carries forward again.

Use the same numbers with taxable income of AED 2 million and the result changes. The cap allows AED 1.5 million of loss to be used, but only AED 900,000 is available. All of it is absorbed, leaving AED 1.1 million taxable and a real 9% charge on the amount above AED 375,000.

How long losses last

The law does not set an expiry date for a carried-forward tax loss. A loss from your first period can still be used many years later, as long as the ownership and business conditions below keep holding.

That makes a loss a real asset on the balance sheet. It also makes it worth tracking properly instead of recalculating it from scratch each year.

Losses that never carry forward

Three categories are shut out from the start.

Losses from before corporate tax began. A loss incurred before the law came into force cannot be claimed. Only losses from a tax period under the corporate tax regime count.

Losses from exempt income. If the income was exempt, the loss attached to it cannot reduce taxable profit. Dividends, qualifying participations, and other exempt streams do not generate usable losses.

Losses from before a person became a taxable person. A loss built up in a period when the person was outside the scope of the tax cannot be brought in later.

The ownership continuity test

A change of shareholder can end a loss balance. Article 39 sets an ownership test. The same person or persons must continuously own at least a 50% ownership interest, from the start of the loss period to the end of the period in which the loss is used.

If ownership changes beyond that threshold, the loss can still survive on one condition. The company must carry on the same or a similar business after the change. Selling the shell and repurposing it for an unrelated trade fails that test, which is exactly what the rule is meant to stop.

There is a carve-out for listed companies. Where the shares are listed on a recognised stock exchange, the ownership continuity condition does not apply in the same way. Ordinary trading in listed shares would otherwise wipe out loss balances every quarter.

Small business relief blocks loss use

This catches people out. Electing into small business relief under UAE CT means being treated as having no taxable income for that period. The FTA’s own small business relief page says the taxpayer is “treated as not having derived any Taxable Income in the Tax Period”.

No taxable income in a period means no loss arises in that period to carry forward. The practical reading is that an existing loss balance cannot be used in an election period either, though you should check the interaction against the FTA’s Small Business Relief guide for your own figures.

For a business sitting on a large brought-forward loss, the relief can therefore be the worse choice. It is worth comparing before the election is made, because the election applies period by period.

What to do with a loss balance

Keep a loss schedule from the first period onward. Record the loss arising, the amount used each period, the closing balance, and the shareholding position at both ends. Keep the workings that turn the accounting result into the tax figure.

Track the ownership register alongside it. A share transfer that looks purely administrative can cross the 50% line. It is much easier to plan for that before it happens than to argue about it afterwards.

Frequently asked questions

Can UAE tax losses be carried back?

No. The regime only allows losses to be carried forward against future taxable income. There is no carry-back to recover tax paid in an earlier period.

How many years can a UAE tax loss be carried forward?

The law sets no time limit. The loss carries forward until it is used, provided the ownership continuity and business continuity conditions keep holding.

Can I use a loss to reduce my tax bill to zero?

Not by the loss alone. The offset is capped at 75% of the period’s taxable income. The remaining 25% stays in charge, though it may still fall inside the 0% band.

What happens to losses if I sell my company?

It depends on how much of the ownership changes. Below a 50% change, the losses continue. Above that, they survive only if the company keeps carrying on the same or a similar business.