UAE Corporate Tax Law – Tax Loss Provisions

The UAE Corporate Tax Law provides for provisions relating the utilization of tax losses as per which the tax losses can be carried forward to subsequent years and offset against future taxable income or can be transferred to other eligible entities upon satisfaction of certain conditions. Accordingly, if the said provisions are utilized appropriately, it may provide significant benefit to the entity or a group of entities eligible to avail these beneficial provisions.

Article 37 – Tax Loss Relief

• A taxable person can carry forward its tax losses indefinitely

• The amount of tax losses to offset the taxable income cannot exceed 75% of taxable income

• A taxable person cannot claim tax loss relief for losses incurred:-

• Before the effective date of CT
• Before becoming a taxable person under the CT law
• Losses incurred from assets or activity the income of which is exempt

• 50% common shareholding to be maintained in the year of loss and up to the year of set off except where

• Same or similar business continued by the entity having losses
• Entity having losses is a listed entity

• A Tax Loss carried forward to a subsequent Tax Period must be set off against the Taxable Income of that subsequent Tax Period, before any remainder can be carried forward to a further subsequent Tax Period, or any Tax Loss transferred under Article 38 of the UAE Corporate Tax Law.

Article 38 – Transfer of Tax Loss

A Taxable Person can transfer its Tax Losses to another Taxable Person subject to certain conditions:-

• Conditions to be met for Transfer of Tax Losses
  • Both taxable persons are resident and juridical persons
  • Either of them has a direct or indirect ownership interest of at least 75% in the other or a third person has a direct or indirect ownership interest of at least 75% in each of the Taxable Person
  • None of them are Exempt or Qualifying Free Zone Person
  • Both have the same financial year and use the same accounting standards
  • The total tax loss offset cannot exceed 75% of taxable income of the other entity

Illustration

Therefore, benefit of transfer of tax losses can be availed as per aforesaid provisions even without formation of a Tax Group. Further, the tax losses can be transferred even if a common third person satisfies the required ownership.