Are You Leaving UAE Corporate Tax Losses on the Table?

In the current landscape of the UAE’s evolving tax regime, a shift in mindset is required. As we move into the 2026 tax year, managing your business is no longer just about generating profit; it’s about strategically managing your “red numbers.”

Many businesses see a fiscal loss as a setback, but under the UAE Corporate Tax Law, a tax loss is actually a valuable deferred tax asset. If handled correctly, these losses can shield your future profits from the standard 9% tax rate, preserving vital cash flow for expansion.

This article explores the practical application of UAE Corporate Tax Losses, from the fundamental mechanics of carry-forwards to the strategic dilemmas posed by Small Business Relief. We will break down how to protect these losses during ownership changes and how to move them within a corporate group to maximize tax efficiency.

Whether a startup or an established group, understanding these rules ensures no money is left on the table.

Understanding UAE Corporate Tax Losses

UAE Corporate Tax Losses arise when a business’s allowable expenses exceed its taxable income for a given financial year. These losses are not wasted; under UAE tax rules, qualifying companies can carry forward their losses to offset future profits, reducing the amount of corporate tax payable.

Who is Eligible to Claim UAE Corporate Tax Losses?

While the tax regime is designed to support businesses during tough years, eligibility isn’t automatic for everyone. It’s important to distinguish between losses that can be carried forward and those that are restricted or excluded.

1. Eligible Entities – Most UAE-incorporated businesses, including startups and freelancers exceeding the AED 1 million turnover threshold, can track and carry forward losses from their first year of operation once taxable profits arise.

• Excluded Losses – Some losses cannot be claimed or carried forward:
• Pre-Regime Losses: Losses incurred before the first tax period under the Corporate Tax Law.
• Exempt Entities: Government bodies, charities, or public benefit organizations.
• Certain Free Zone Persons: Qualifying Free Zone Persons (QFZPs) benefiting from 0% rates on “Qualifying Income.”
• Exempt Income Activities: Losses from non-taxable income, such as certain dividends or capital gains from a Participating Interest.

By focusing on the exceptions, businesses can more easily track which losses are eligible and plan strategically for future taxable periods.

How Losses Can Be Carried Forward

• The Indefinite Carry-Forward Rule

The foundation of the loss regime is found in Article 37 of the UAE Corporate Tax Law. Unlike many international jurisdictions where tax losses might expire after five or seven years, the UAE has adopted a generous “indefinite” carry-forward rule. This means a loss incurred in 2024 can theoretically offset profits in 2034, provided the business remains a taxable person, maintains accurate records and complies with the rules that protect losses (discussed in a following section).

• The 75% Utilization Ceiling

However, this generosity comes with a ceiling. You cannot offset your entire tax bill in a single profitable year using carried-forward losses. The law imposes a 75% utilization cap. This means that in any given tax period, you can only offset up to 75% of your taxable income using brought-forward UAE Corporate Tax Losses.

Practical Example: If your company earns a taxable profit of AED 1,800,000 in 2026 but has AED 2,000,000 tax losses from previous years, you can only use AED 1,350,000 of those losses (75% of AED 1.8M). You will still pay 9% tax on the remaining AED 450,000. The remaining AED 650,000 in losses rolls over to 2027.

Why Businesses Often Leave UAE Corporate Tax Losses on the Table

Despite the clear benefits, many businesses fail to fully utilise their losses. Understanding these common pitfalls is essential to prevent missed opportunities.

Poor Record-Keeping

Without properly maintained accounting records, companies may struggle to identify the exact amount of UAE Corporate Tax Losses available. Incomplete documentation or missing financial statements can result in the FTA disallowing your claim.

Misunderstanding Group or Carry-Forward Rules

A common misconception is that subsidiaries can automatically share losses simply because they are part of the same “business group.” In the eyes of the UAE Federal Tax Authority (FTA), there are two distinct paths, each with its own strict rules:

1. Tax Loss Transfers (75% Ownership): Under Article 38, separate companies can choose to transfer a portion of their UAE Corporate Tax Losses to one another. This requires a formal election and the “giving” company must have at least 75% common ownership with the “receiving” company.

2. Tax Groups (95% Ownership): Under Article 40, a parent company and its subsidiaries can form a formal Tax Group. In this case, the group is treated as a single taxable person, and the parent company consolidates all profits and losses automatically.

It is also important to remember that UAE Corporate Tax Losses cannot be distributed to unrelated companies. They must remain within entities that meet these specific common ownership thresholds. Misinterpreting these rules, or failing to make the formal election, often leads businesses to leave potential tax savings unclaimed.

Protecting Your Asset: Ownership and Continuity

Article 39 of the UAE Corporate Tax Law sets out strict “Change in Control” rules to prevent what is often called “loss trafficking.” This happens when a profitable business buys a struggling company primarily to use its tax benefits. To keep your UAE Corporate Tax Losses active after a significant shift in ownership, you must satisfy one of two specific conditions:

1. The Ownership Test: Losses can only be used if 50% or more of the company stays with the same owners from the year the loss occurs to the year it is claimed.

2. The Business Continuity Test: When ownership changes by over 50%, losses remain available only if the company continues operating the same or a similar business.

Navigating the Ownership Test and Business Continuity Test can be complex, particularly for businesses experiencing changes in shareholders or restructuring. WellTax can assist companies in understanding these rules and ensuring that their UAE Corporate Tax Losses are preserved, helping you plan effectively while remaining compliant with the law.

The SBR Dilemma: When “Relief” Costs You More

For many small businesses, Small Business Relief (SBR), per Ministerial Decision No. 73, of 2023 seems like an obvious choice. If your revenue is below AED 3 million, you pay 0% tax and enjoy a simplified tax return.

However, if you elect for SBR, any UAE Corporate Tax Losses incurred during that year are permanently forfeited. It cannot be carried forward, nor can it be utilised in any future tax period where you are in a taxable income position.

For a startup with heavy initial startup costs, it might be wiser not to elect for SBR. By filing a standard return and showing a loss, you “lock in” that loss with the FTA. This creates a tax shield for when your revenue eventually climbs above the threshold.

Our article on Small Business Relief in the UAE Explained unpacks the key considerations for SMEs deciding whether to opt into SBR or preserve their corporate tax losses.

How to Maximise the Benefit of UAE Corporate Tax Losses

Proper planning and proactive management are the keys to ensuring no tax benefits go unused.

Keep Accurate Financial Records

• Maintain detailed and organised bookkeeping. Track all income, expenses, and losses annually.
• Consider using accounting software or working with a professional accountant to ensure clarity and compliance.
• Accurate records allow businesses to prove eligibility for loss carry-forwards and prevent disputes with the FTA.

Plan Ahead for Future Taxable Profits

• Evaluate projected profits and expenses for upcoming years.
• Apply carried-forward losses strategically to reduce corporate tax liabilities when profits arise.
• Example: A small consulting firm projected AED 1 million in profits for Year 2. By applying AED 400,000 of losses carried forward from Year 1, the company reduced its corporate tax payable by nearly 40%, preserving cash flow for growth.

Seek Professional Advice When Needed

Tax rules can be complex, particularly for corporate groups or businesses with fluctuating profits. Engaging a professional can help ensure compliance and optimise the use of UAE Corporate Tax Losses. FTA-registered tax agents like WellTax can provide practical guidance on applying losses effectively and planning for future profits, helping businesses make informed decisions while staying fully compliant.

Common Questions About UAE Corporate Tax Losses

1. How Long Can Losses Be Carried Forward? Losses can generally be carried forward indefinitely, provided proper documentation is maintained and they are applied correctly against future profits.

• Can Losses Be Transferred Within a Corporate Group? Yes, under Article 38 for 75% ownership or via a Corporate Tax Group for 95% ownership, subject to specific FTA conditions.

• Are There Documentation Requirements? Yes, companies must maintain detailed financial records for at least seven (7) years, including audited or reviewed financial statements where applicable, to support the claimed losses. Without sufficient evidence, the FTA may disallow the offset.

• Can SMEs Benefit from Losses Even with Small Profits? Absolutely. Even modest profits can be offset by previously accumulated losses, which may significantly reduce corporate tax obligations for small and growing businesses.

Key Take-away

Failing to claim UAE Corporate Tax Losses represents a missed opportunity. By maintaining accurate records, understanding the 75% utilization cap, and planning strategically around reliefs like SBR, you can ensure your “red years” support your future growth.

SMEs and larger corporations alike should review their financial records now to confirm they are not leaving UAE Corporate Tax Losses on the table. Even losses incurred during your first year of operation can provide a valuable advantage in strengthening your long-term cash flow. If you’d like a structured approach to tracking and applying these losses, consider exploring guidance from WellTax – turning what might seem like past setbacks into a strategic advantage for your business.