How UAE corporate tax loss carry forward works: eligibility, conditions and limits

UAE companies can carry forward tax losses from one period to offset future taxable income. There is no fixed time limit for using tax losses carried forward, but several restrictions and conditions apply in practice. Knowing these helps business owners plan for tax efficiency and compliance.

How much tax loss can be carried forward

If your company has a tax loss (where allowable business expenses exceed income, giving a negative taxable income for the year), you can generally carry that loss forward to offset taxable income in a future year. The corporate tax law allows:

• Tax losses can be carried forward and set against up to 75% of taxable income in each subsequent tax period.

So if your company made a taxable profit of AED 1,000,000 in the following year and had previous tax losses, you can only offset up to AED 750,000 of that profit using brought-forward losses. Any remaining unutilised losses can be carried forward again to later years, still subject to the 75% cap each year.

Tax loss carry forward at a glance

What counts as a tax loss

A tax loss is determined specifically for corporate tax purposes. It is not always the same as an accounting loss shown in your financial statements. Only losses calculated after adjusting for non-deductible expenses, exempt income and other tax-specific rules count as a "tax loss". For example, expenses that are disallowed for tax purposes (such as certain fines, penalties or non-business expenditures) cannot contribute to a tax loss.

Restrictions on carrying forward tax losses

There are some specific situations where you cannot carry forward tax losses:

• If the loss arose in a period when the business was not a 'Taxable Person' under UAE corporate tax (for example, before the start of your first corporate tax period).
• Losses from activities or periods where the income was exempt from corporate tax.
• Losses from activities or branches that are themselves exempt from corporate tax (such as extractive or non-extractive natural resource businesses under certain conditions).

Change of ownership: when losses cannot be carried forward

A change of ownership can impact a company’s ability to use carried-forward tax losses. The rules are:

• If there is a change in ownership of more than 50% (directly or indirectly), and
• There is also a major change in the company’s business (nature or conduct),
• Then, the tax losses from before that change cannot be carried forward to offset future profits.

If only ownership changes or only the business changes, but not both, the ability to carry forward losses continues. If both tests are failed (ownership and business change), the loss carry forward is blocked.

Group companies: tax loss transfers

It is possible for companies in a group to transfer tax losses between them under specific circumstances. The group rules (not to be confused with tax group consolidation) say:

• Tax loss transfer is only allowed between resident juridical persons in the UAE that are not exempt or taxed under a special regime.
• Both companies must be at least 75% commonly owned (directly or indirectly).
• Losses can only be transferred for the same tax period in which they are incurred (not for prior year brought-forward losses).
• Transferred losses cannot exceed the usable limit (75% of taxable income).

Practical example: how loss carry forward works

Suppose your company had a tax loss of AED 500,000 for 2024. In 2025, your taxable income before applying losses is AED 900,000. You can only use up to AED 675,000 (75% of 900,000) in carried-forward losses in 2025, but since you only have AED 500,000, you can use the full amount. If you had carried-forward losses of AED 800,000, you would only be able to use AED 675,000 in 2025 and carry forward the remaining AED 125,000 to future years.

Key points for compliance and planning

• Keep detailed records of how your tax losses are calculated and applied. These can be reviewed or challenged by the Federal Tax Authority.
• Confirm that carried-forward losses relate only to taxable activities and periods. Losses from exempt branches or before corporate tax applies are excluded from relief.
• Restructurings or changes in shareholding should be assessed for the potential impact on your ability to use losses in future periods.