Tax Losses Under UAE Corporate Tax: Carry-Forward Rules and the 75% Cap

For any UAE company that made a loss in one year and profit in the next: how much of that loss you can actually use, how long it survives, what a change of shareholder does to it, and when it can be handed to a sister company.

A UAE tax loss can be carried forward and offset against taxable income in later tax periods, but the offset in any one period cannot exceed 75% of that period’s taxable income before loss relief. The Corporate Tax Law sets no expiry date on an unused loss. It does attach a condition: the same owners must have continuously held at least 50% of the company from the period the loss arose to the period it is used, unless the business continued in the same or a similar form after the ownership change.

This guide works from Chapter Eleven of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, which is three articles long and decides almost everything about loss relief in the UAE. Articles 37, 38 and 39 cover the cap, the transfer of losses between related companies, and the ownership continuity test. Registration and filing mechanics are in our guides to corporate tax registration on EmaraTax and corporate tax return filing deadlines and penalties.

What a Tax Loss Is and When You Can Use It

A tax loss arises where the adjustments required by the Corporate Tax Law produce a negative taxable income for a tax period. Article 37(1) allows that loss to be offset against the taxable income of subsequent tax periods to arrive at taxable income for those periods.

Two features of that sentence matter. Relief runs forward only, so there is no carry-back to recover tax already paid in an earlier profitable year. And the loss is a company-level attribute that has to be tracked outside the accounts, because the accounting loss and the tax loss will rarely be the same number once disallowed expenditure and exempt income adjustments are applied.

How Long Can a UAE Tax Loss Be Carried Forward?

Indefinitely. Federal Decree-Law No. 47 of 2022 sets no time limit on carrying a tax loss forward. What constrains the loss is the 75% annual utilization cap in Article 37(2) and the ownership continuity conditions in Article 39, not an expiry date. A loss can therefore sit unused for years and still be available, provided the Article 39 conditions have been met throughout.

The 75% Cap, Worked Through

Article 37(2) caps the amount of loss used in any subsequent period at 75% of the taxable income of that period before any loss relief. The Cabinet can set a different percentage or prescribe exceptions on the Minister’s suggestion, but 75% is the operative figure.

The practical effect is that a profitable company with large carried-forward losses still pays tax. Twenty five percent of its taxable income is exposed in every year until the losses run out. The example below assumes a company with an AED 3,000,000 loss brought forward and the AED 375,000 zero-rate band applying to taxable income after loss relief.

Year 2 is the one that surprises people. The company has AED 3,000,000 of losses and AED 1,000,000 of income, yet AED 250,000 remains taxable. Above the AED 375,000 threshold that would attract 9%, which is why loss-rich companies still need to budget for a corporate tax payment. The rate mechanics are set out in our guide to how the 9% is calculated.

Losses You Can Never Claim

Article 37(3) closes off three categories outright.

• Losses incurred before corporate tax commenced. Accumulated losses from the years before the regime started are not tax losses for this purpose, no matter how large the balance on the accounts is.
• Losses incurred before the person became a taxable person. A business that only came within the regime later cannot reach back for the years before it did.
• Losses from an exempt asset or activity. Where the income of an asset or activity is exempt or is otherwise not taken into account under the Decree-Law, the losses of that same asset or activity are not claimable. Symmetry is the principle: if the upside was outside the tax base, so is the downside.

A fourth restriction sits outside Article 37. In any tax period in which a business elects Small Business Relief, it is treated as having no taxable income, and the FTA’s Small Business Relief Guide confirms that an electing person cannot accrue, utilize or transfer tax losses in that period. A loss made in an election year is gone. Losses brought forward from a non-election year survive and can be used in a later period where the business has taxable income and does not elect.

The Order Losses Must Be Used In

Article 37(4) fixes the sequence. A tax loss carried forward into a period must be set against that period’s taxable income before any remainder is carried on further, and before any loss transferred to you under Article 38 can be used. You cannot preserve your own losses by absorbing a group company’s loss first.

The rule has a real consequence in groups where one member is close to using up its losses and another has a surplus. Modeling the transfer first and the carry-forward second produces the wrong answer and, on the return, the wrong figure.

Transferring a Loss to Another UAE Company

Article 38 permits a tax loss, or part of one, to be offset against another taxable person’s income without forming a tax group. Eight conditions must all be met.

Where a transfer happens, Article 38(2) requires the recipient to reduce its taxable income for the period, caps the total offset at the same 75% limit, and requires the transferor to reduce its own available losses by the amount transferred. The loss is moved, not duplicated.

Can a UAE Company Transfer Its Tax Losses to Another Company?

Yes, under Article 38 of the Corporate Tax Law, where both are UAE resident juridical persons linked by at least 75% direct or indirect ownership held continuously, neither is exempt or a Qualifying Free Zone Person, and both share the same financial year end and accounting standards. The transferred loss is capped at 75% of the recipient’s taxable income and reduces the transferor’s own loss balance.

The Ownership Continuity Test That Kills Losses on a Sale

Article 39 is the provision most likely to catch an owner-managed company at exit. Losses can only be carried forward and used if one of two tests is satisfied.

The first test is ownership. From the beginning of the tax period the loss was incurred to the end of the tax period it is used in, the same person or persons must have continuously owned at least a 50% ownership interest in the taxable person. Sell more than half the company and this test fails.

The second test is a fallback where ownership has changed by more than 50%: the business must have continued to conduct the same or a similar business or business activity after the change. Article 39(2) lists the relevant factors, and they are cumulative indicators rather than a checklist to pass individually.

• The taxable person uses some or all of the same assets as before the ownership change.
• There have been no significant changes to the core identity or operations of the business since the change.
• Where changes have been made, they result from the development or exploitation of assets, services, processes, products or methods that existed before the change.

Article 39(3) removes the condition entirely for a taxable person whose shares are listed on a Recognised Stock Exchange, which is the only clean exemption in the article. The effect for everyone else is that a loss balance is not a freely transferable asset. A buyer acquiring more than half of a loss-making UAE company inherits those losses only if the business itself continues recognisably, and stripping the target back to a shell after acquisition is exactly the fact pattern Article 39(2) is written to catch.

Losses on a Restructuring, and Inside a Tax Group

Where a business or an independent part of a business is transferred under Business Restructuring Relief, Article 27(3)(d) allows the transferor’s unutilized losses to become carried-forward losses of the transferee, subject to conditions prescribed by the Minister. Article 27(5) narrows that where only part of a business moves: only losses reasonably attributable to the part being transferred can follow it. The mechanics of that relief and of Qualifying Group Relief are covered in our guide to moving assets and businesses between UAE companies without triggering tax.

Inside a tax group the treatment is different again. A subsidiary’s unutilized losses at the point it joins become pre-grouping losses with restricted use, and the group’s own losses are subject to the same 75% cap. Our guide to UAE corporate tax groups and their hidden costs sets out how pre-grouping losses are ring-fenced and why grouping is not a route to using an acquired company’s historic losses.

What This Means for Your Records

Loss relief is a documentation exercise as much as a computation. The FTA has to be able to trace each loss from the period it arose to the period it was used, which means keeping the tax computation that created it, the shareholder register evidencing continuity of ownership across every intervening period, and, where a transfer occurred, the evidence that all eight Article 38 conditions held on both sides.

Two limitations are worth stating plainly. The treatment of losses arising in a Qualifying Free Zone Person is not fully spelled out in Article 37: the law is explicit that a QFZP cannot transfer losses under Article 38, but the interaction between qualifying income taxed at 0% and the Article 37(3)(c) exclusion for exempt activities is a point to confirm with the FTA or a registered tax agent on your specific facts. And the Cabinet retains the power under Article 37(2) to set a percentage other than 75%, so the cap is a current figure rather than a permanent one. Record-keeping obligations are covered in our guide to bookkeeping and audit requirements under UAE corporate tax.

Frequently Asked Questions

How much of a tax loss can I use in one year in the UAE?

Up to 75% of the taxable income of that tax period before any loss relief, under Article 37(2) of Federal Decree-Law No. 47 of 2022. The remaining 25% of taxable income stays exposed to corporate tax. Unused losses carry forward to later periods, subject to the same cap each year.

Do UAE tax losses expire?

No. The Corporate Tax Law sets no time limit on carrying a tax loss forward. What can extinguish a loss is a failure of the Article 39 ownership continuity test, an election for Small Business Relief in the period the loss arises, or the loss falling into one of the excluded categories in Article 37(3).

Can I carry a UAE tax loss back to an earlier profitable year?

No. Article 37(1) provides only for offset against the taxable income of subsequent tax periods. There is no carry-back mechanism in the UAE Corporate Tax Law, so tax paid in an earlier profitable period cannot be recovered by a later loss.

What happens to my tax losses if I sell the company?

If the same owners no longer continuously hold at least 50% of the company from the loss period to the period of use, the losses survive only if the business continued to conduct the same or a similar business activity after the change. Article 39(2) looks at whether the same assets are used, whether the core identity and operations changed, and whether any changes built on things that already existed.

Are pre-2023 accumulated losses usable against UAE corporate tax?

No. Article 37(3)(a) excludes losses incurred before the date of commencement of corporate tax, and Article 37(3)(b) excludes losses incurred before a person became a taxable person. An accumulated loss on the balance sheet from earlier years is an accounting figure, not a usable tax loss.

What happens to losses if I elect Small Business Relief?

In any period you elect, you cannot accrue, utilize or transfer tax losses, so a loss made in that period is permanently lost. Losses brought forward from a period in which you did not elect are preserved and can be used in a future period where you have taxable income and do not elect the relief.

Can a free zone company transfer its tax losses?

No. Article 38(1)(f) expressly excludes a Qualifying Free Zone Person from the loss transfer mechanism, on either side of the transfer. Where a free zone company has fallen out of qualifying status and is taxed at 9%, its position should be confirmed with a registered tax agent because the analysis depends on the periods involved.

Which loss do I use first if I have both my own and a transferred loss?

Your own carried-forward loss. Article 37(4) requires a loss carried forward into a period to be set against that period’s taxable income before any remainder is carried on further and before any loss transferred under Article 38 is used.

Does forming a tax group let me use a subsidiary’s old losses?

Not freely. A subsidiary’s unutilized losses at the date it joins become pre-grouping losses and can only be offset against income attributable to that subsidiary, which requires a standalone calculation. Grouping is not a route to applying an acquired company’s historic losses against the profits of other members.

Do I still have to file a return if I only made a loss?

Yes. Every registered taxable person must file a corporate tax return within nine months of the end of the tax period, including in a period where taxable income is nil or negative. Filing the loss is also how the loss is recorded and preserved for future use.

Official Sources

This article references information from the following UAE government authorities and legal sources:

• Federal Tax Authority – Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Articles 26, 27, 37, 38 and 39)
• Federal Tax Authority – Small Business Relief Corporate Tax Guide
• Federal Tax Authority – Corporate Tax guides and references
• Federal Tax Authority – Legislation library
• Federal Tax Authority – Corporate Tax

This guide is for informational purposes only and is not tax or legal advice. Information is current as of August 2026. Article numbering refers to the unofficial English translation of Federal Decree-Law No. 47 of 2022 published by the Federal Tax Authority. The 75% cap in Article 37(2) can be varied by Cabinet decision, and Ministerial Decisions issued under Articles 27 and 39 may add conditions not reproduced here, so verify the current position on the FTA legislation page. Loss positions are fact-specific, particularly on a change of ownership or a restructuring; confirm the treatment with the Federal Tax Authority or a registered tax agent before filing.