Many UAE companies made a loss in their first Corporate Tax years, from start-up costs, a slow market or a one-off write-off. That loss is not wasted. Under the Corporate Tax Law it can reduce tax in later profitable years, and in some groups it can move to a sister company. But the relief has limits: a 75% cap, an ownership test, and losses that can never be used at all. This guide explains the rules so you can plan your next returns.
How tax loss relief works
If your taxable income for a tax period is negative, you have a tax loss. You can carry it forward and set it off against taxable income in later tax periods. Losses cannot be carried back to earlier years.
Each year, the loss you use is capped at 75% of that year's taxable income. You always pay tax on at least a quarter of your profit, even when you have large losses brought forward. Any loss above the cap stays available for later years.
Example: a company carries forward a loss of AED 800,000 and makes taxable income of AED 600,000 this year. It can use AED 450,000 (75% of 600,000). It pays tax on the remaining AED 150,000 and carries AED 350,000 forward.
Losses you cannot use
Some losses can never be offset:
- losses incurred before the Corporate Tax Law came into effect
- losses incurred before you became a taxable person
- losses from activities or assets that produce income exempt from Corporate Tax
So a loss from your 2022 accounts, or a loss tied to exempt dividend income, does not count.
The 50% ownership test
For a company, the loss can only be carried forward if the same owners keep at least 50% of the ownership continuously from the start of the period in which the loss arose to the end of the period in which it is used.
If ownership changes by more than 50%, the loss is not automatically lost. It can still be used if the company continues the same or a similar business after the change. The ownership test does not apply to companies whose shares are listed on a recognised stock exchange.
This matters when you sell or bring in a new investor. A large share sale can wipe out losses if the business also changes direction.
Moving losses within a group
A resident company can transfer a tax loss to another resident company in the same group when:
- one company holds at least 75% of the other, directly or indirectly, or a third person holds at least 75% of both
- neither company is an exempt person or a Qualifying Free Zone Person
- both have the same financial year and prepare financial statements under the same accounting standards
The receiving company can use the transferred loss only up to 75% of its own taxable income. The Ministry of Finance's consolidated text of the law, as amended, also requires the transfer to be made for valid commercial or other non-fiscal reasons that reflect economic reality.
Special cases: Small Business Relief and free zones
Small Business Relief. If you elect Small Business Relief for a tax period, any loss made in that period cannot be carried forward. Losses from earlier periods are kept, and you can use them in a later year when you do not elect the relief.
Qualifying Free Zone Persons. Losses linked to qualifying income cannot be used, transferred or carried forward. Other losses can only be set off against non-qualifying income. A Qualifying Free Zone Person also cannot transfer losses to, or receive losses from, another taxable person.
What to do now
- Build a loss register. Record each year's tax loss, how much you have used and what is left.
- Separate unusable losses. Mark losses from before Corporate Tax, before you became taxable, and from exempt income, so you do not claim them by mistake.
- Apply the 75% cap when you estimate next year's tax, and budget for tax on the remaining 25% of profit.
- Check ownership before a deal. Before selling shares or bringing in an investor, check the 50% test and keep evidence that the business stays the same or similar.
- Weigh Small Business Relief in a loss-making year, because a loss made in an elected year cannot be carried forward.
- Review group transfers if you have related companies, and record the commercial reason for each transfer.
How Dreambooks helps
Dreambooks keeps your accounts in a format ready for your Corporate Tax return and tracks taxable income year by year, so you can see your losses brought forward, how much the 75% cap lets you use, and what is left for future years. With clean records and audit trails, you have the evidence the FTA may ask for when you claim a loss.
Official sources
- Ministry of Finance: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, with amendments
- FTA: Corporate Tax Guide on Determination of Taxable Income
- FTA: Corporate Tax Guide on Small Business Relief
- FTA: Corporate Tax Guide on Free Zone Persons
- FTA: Corporate Tax legislation
This article is general information as of November 2026, not tax advice. Check the latest Ministry of Finance and FTA guidance, or speak to your tax adviser, before acting.