UAE Corporate Tax Losses: How to Carry Them Forward and Use Them.

Most businesses make a loss at some point. A new company spends ahead of revenue, or a good business has a bad year. UAE Corporate Tax recognises this: a tax loss in one period can reduce taxable income in later periods.

The catch is that the relief has limits, and some everyday decisions can quietly cancel a loss you were counting on. Here is how it works.

What counts as a tax loss

A tax loss is negative taxable income for a tax period, worked out under the Corporate Tax Law. It is not simply the loss in your accounts. The accounting result is adjusted for the tax rules first, so the two figures can differ.

Some losses can never be used:

• Losses before Corporate Tax applied. Anything incurred before Corporate Tax commenced for your business.
• Losses before you became a taxable person. For example, before a freelancer crossed the threshold that brought them into the regime.
• Losses from exempt activities. Losses from an asset or activity whose income is exempt or not taken into account.

Carrying losses forward, and the 75% cap

A tax loss is carried forward and set against taxable income in later periods. There is no carry-back to earlier years, and the FTA's own guidance says unused losses can be carried forward indefinitely, provided the conditions below keep being met.

Two rules shape how you use them:

• The 75% cap. In any later period, carried-forward losses can reduce taxable income by no more than 75% of that period's taxable income, measured before loss relief. At least a quarter of the profit stays taxable.
• Use it or lose the choice. You cannot save a loss for a better year. Losses must be set off against the next period's taxable income, up to the cap, before any remainder moves on.

A worked example

"We made a tax loss of AED 2,000,000 in 2026 while we opened two new branches. In 2027 we expect taxable income of AED 2,000,000, and in 2028 another AED 2,000,000."

• 2026. No tax. The AED 2,000,000 loss is carried forward.
• 2027. The cap is 75% of AED 2,000,000, which is AED 1,500,000. Taxable income falls to AED 500,000. Tax is 9% on the AED 125,000 above AED 375,000, which is AED 11,250. The remaining AED 500,000 of loss carries forward.
• 2028. The cap is again AED 1,500,000, so the full AED 500,000 is used. Taxable income is AED 1,500,000 and tax is 9% of AED 1,125,000, which is AED 101,250.

Without the loss, each profitable year would have cost AED 146,250.

Ownership continuity and the same business test

For a company, losses survive only if one of two conditions holds:

1. Ownership continuity. The same person or persons continuously owned at least 50% of the business, from the start of the period in which the loss arose to the end of the period in which it is used.
2. Same or similar business. If ownership changed by more than 50%, the loss can still be used if the business carries on the same or a similar activity afterwards.

The law lists what points towards "same or similar": using some or all of the same assets, no significant change to the core identity or operations, and any changes coming from developing assets, products or methods that already existed. These tests do not apply to companies listed on a recognised stock exchange.

Transfers within a group

A loss can be moved from one company to another where all of these are true:

• Both are UAE resident juridical persons (companies, not individuals).
• One owns at least 75% of the other, directly or indirectly, or a third party owns at least 75% of both.
• That common ownership exists from the start of the period in which the loss arose to the end of the period in which the receiving company uses it.
• Neither is an Exempt Person or a Qualifying Free Zone Person.
• Both have the same financial year end and use the same accounting standards.

The receiving company is still bound by the 75% cap, and it must use its own losses first. The transferring company's losses reduce by the amount transferred.

A Tax Group is different. It needs at least 95% common ownership and is treated as a single taxable person. If a subsidiary joins with its own unused losses, those losses can only be set against the group income attributable to that subsidiary.

How Small Business Relief affects losses

Small Business Relief lets a resident business with revenue of AED 3,000,000 or less, in the current period and every earlier one, be treated as having no taxable income. In August 2026 the Ministry of Finance extended it (Ministerial Decision No. 131) to tax periods ending on or before 31 December 2029.

The relief and losses interact in two ways:

• A loss made in a relief year is gone. It cannot be carried forward to any later period.
• Older losses are parked, not lost. Losses from earlier years where you did not elect the relief can be carried forward to later years where you also do not elect it, subject to the normal conditions.

So a loss-making year near the threshold deserves a second look. If you expect to grow past AED 3,000,000 soon, keeping the loss may be worth more than the relief. Run the numbers both ways before you elect.

Keeping the evidence

A loss is only as good as the records behind it. Keep a loss schedule that shows each year's loss, what was used, what was transferred and what remains, alongside shareholder registers that prove the ownership test. The Corporate Tax Law requires records to be kept for seven years after the end of the tax period they relate to, and a loss used years later will point back to the year it arose. Clean monthly bookkeeping makes this far easier.

How we help

As part of our Corporate Tax filing service, we keep a running loss schedule for each client, apply the 75% cap each year, and flag ownership changes or relief elections that could put a loss at risk.

Frequently asked questions

Do UAE Corporate Tax losses expire?

No time limit is set. The FTA guide on determining taxable income says unused losses can be carried forward indefinitely, as long as the ownership or same business conditions continue to be met.

Can I carry a loss back to an earlier year?

No. Tax losses can only be offset against taxable income of later tax periods. They cannot be carried back.

Can I choose to save a loss for a later, bigger year?

No. A loss carried forward must be used against the next period's taxable income, up to the 75% cap, before any remainder moves on.

Can a Free Zone company use or share losses?

A Qualifying Free Zone Person cannot transfer losses to, or receive losses from, another company, and losses on its 0% Qualifying Income cannot be carried forward.