Most UAE business owners see a loss-making year as a setback. Under the UAE Corporate Tax Law, it is also a tax asset — one that can shield future profits from the 9% rate indefinitely, provided you understand the rules and protect the loss correctly.
The keyword there is “provided.” The UAE’s corporate tax loss relief framework is genuinely generous — no time limit on carry-forward, no annual expiry, losses available to offset future profits for as long as the business operates. But it comes with specific conditions that, if missed, can permanently destroy the loss asset you have been building — sometimes through a single filing decision that seemed routine at the time.
On June 25, 2026, the Federal Tax Authority issued its Basic Tax Information Bulletin on Corporate Tax Losses — the most authoritative official guidance on this topic to date. This guide incorporates that bulletin alongside the practical 2026 realities of loss relief, the 75% utilisation cap, the Small Business Relief trap, the ownership continuity test, and the situations where losses are forfeited permanently.
If your business has made losses in any period since June 2023 — or expects to — this is what you need to know before your next corporate tax return is filed.
What Is a Tax Loss Under UAE Corporate Tax Law?
Before covering how to use a tax loss, it is important to understand exactly what a tax loss is — because it is not the same as an accounting loss.
For corporate tax purposes, a tax loss arises when a business’s deductible expenses exceed its income subject to corporate tax in a given tax period. This is the tax-adjusted loss — calculated after applying the UAE Corporate Tax Law’s add-backs, exclusions, and adjustments to the accounting profit or loss figure.
A company can report an accounting profit but have a tax loss — for example, if significant income is exempt (qualifying dividends, participation exemption gains) and deductible expenses are high. Conversely, a company can report an accounting loss but have positive taxable income — for example, if non-deductible expenses (entertainment over 50%, fines, certain related-party costs) are added back in the tax computation.
The distinction matters practically: only the tax-adjusted loss is available to carry forward. A business that records a AED 500,000 accounting loss but has AED 150,000 in non-deductible add-backs has a tax loss of AED 350,000 — not AED 500,000. Carrying forward the wrong figure means overclaiming loss relief in future periods — which creates an FTA audit liability.
Maintaining the tax computation alongside the accounting records — and reconciling the two clearly in your corporate tax return — is one of the most important functions of professional corporate tax advisory support.
The Core Rule Tax Losses Carry Forward Indefinitely in UAE
Under Article 37 of Federal Decree-Law No. 47 of 2022, UAE corporate tax losses carry forward indefinitely. There is no five-year limit, no seven-year limit, no expiry date. A tax loss incurred in the first tax period starting on or after June 1, 2023 remains available to offset future profits in any subsequent period — whether two years later or fifteen.
This is more generous than many comparable jurisdictions. The UK restricts carry-forward utilisation for certain businesses. Australia has business continuity tests that can extinguish historic losses. In the UAE, the loss simply remains on the books until it is either used or forfeited through one of the specific triggers described below.
The 75% utilisation cap — how it works in practice:
While losses carry forward indefinitely, you cannot use them all at once. In any single tax period, carried-forward losses can offset a maximum of 75% of taxable income for that period. The remaining 25% is always taxable at the applicable rate.
Real AED example:
A Dubai professional services company incurred tax losses of AED 1,200,000 across its first two years of operation. In 2026, it generates AED 800,000 in taxable profit.
- Maximum loss offset: AED 800,000 × 75% = AED 600,000
- Remaining taxable income: AED 800,000 − AED 600,000 = AED 200,000
- Corporate tax at 9% on income above AED 375,000: AED 200,000 is still below the threshold — tax payable is AED 0
- Remaining carried-forward losses: AED 1,200,000 − AED 600,000 = AED 600,000 available for 2027 and beyond
Important rule most businesses miss: You cannot choose to offset a lower amount than the 75% cap in order to preserve a higher loss balance for future periods. If your taxable income in a period is AED 800,000, the law requires you to offset up to AED 600,000 of carried-forward losses — whether you want to or not. The oldest losses must also be used before newer ones.
The SBR Trap The Most Costly Filing Decision UAE SMEs Make
This is the section of this guide with the highest practical financial value — and the one most UAE businesses discover too late.
Small Business Relief (SBR) allows UAE businesses with annual revenue of AED 3 million or below to elect to have their taxable income treated as zero for a tax period — effectively paying no corporate tax. It is available for tax periods ending on or before December 31, 2026.
For a business with losses, electing SBR in a profitable year seems attractive — zero tax, simplified return. But the FTA’s June 2026 bulletin confirms the critical consequence: any losses incurred during an SBR period are permanently forfeited. They cannot be carried forward. They cannot be transferred. They are gone.
The SBR comparison every loss-making UAE business must run:
A startup with AED 2.8 million in revenue and AED 400,000 in tax losses from its first year of operation becomes profitable in 2026, earning AED 450,000 in taxable profit.
Option 1 — Elect SBR:
- Tax payable: AED 0 (zero under SBR election)
- 2025 losses: Permanently forfeited — cannot be used in future periods
- Future tax saving lost: AED 400,000 × 9% = AED 36,000 of future tax shield destroyed
Option 2 — File standard return and use losses:
- Taxable income: AED 450,000
- 75% loss offset: AED 337,500 (75% of AED 450,000)
- Remaining taxable income: AED 112,500
- Tax payable: AED 112,500 is below the AED 375,000 threshold — tax payable: AED 0
- Losses remaining: AED 62,500 still available for future years
In this example, both options result in zero tax in 2026 — but Option 2 preserves AED 62,500 in carried-forward losses while Option 1 destroys AED 400,000 of them permanently. For a business with higher future profits, the difference is significant.
The rule: Never elect SBR without first modelling the value of your carried-forward losses against the simplicity benefit of the election. For most loss-making businesses approaching the AED 3 million threshold, the maths favours filing a standard return.
The Ownership Continuity Test When Losses Are at Risk from Share Sales
Tax losses are attached to the business that incurred them. If ownership of that business changes significantly, the law contains conditions that determine whether those losses survive the transaction.
Under Article 37, if ownership of the business changes by more than 50%, the carried-forward losses can still be used — but only if the business continues to conduct the same or substantially similar business activity after the ownership change. If both the 50% ownership threshold is crossed AND the business fundamentally changes its activities, the losses are forfeited entirely.
The two tests and how they interact:
| Scenario | Ownership Change | Business Continuity | Losses Survive? |
|---|---|---|---|
| Minority share sale — under 50% | No threshold crossed | N/A | ✅ Yes — fully |
| Majority sale — over 50% | Threshold crossed | Same activity continues | ✅ Yes — preserved |
| Majority sale — over 50% | Threshold crossed | Activity fundamentally changed | ❌ No — forfeited |
| Deregistration from corporate tax | N/A | N/A | ❌ No — forfeited permanently |
Real scenario — losses saved: A UAE tech startup with AED 3,000,000 in accumulated losses across 2024 to 2025 raises investment in 2026 — the investor acquires 75% equity (ownership test fails). However, the company continues developing the same software product for the same customer base under the same brand. The business continuity test passes. The losses survive and remain available against future profits.
Real scenario — losses forfeited: A UAE consultancy with AED 2,000,000 in accumulated losses sells 70% of its equity in 2025. The new owners then restructure the business as a trading company in 2026. Both the ownership test and the business continuity test fail. The losses are permanently forfeited.
Critical 2026 implication: Every share sale, capital raise, or group reorganisation involving a UAE business with significant carried-forward losses needs to be reviewed before the transaction closes — not after. Our corporate tax advisory team tests the 50% ownership threshold and business continuity alternative against the specific facts of each transaction before any documents are signed.
Transferring Losses Between UAE Group Companies Article 38
If one company in your UAE group is loss-making while another is profitable, Article 38 of the Corporate Tax Law allows the loss-making entity to transfer its losses to the profitable entity — enabling offset without requiring both entities to be part of a formal Tax Group.
Conditions for an Article 38 loss transfer:
- At least 75% common ownership between the loss-making and profit-receiving entities (or a common parent owning 75% of both)
- Both entities must be UAE resident juridical persons
- Neither entity can be an exempt person or a Qualifying Free Zone Person (QFZP)
- Both entities must share the same financial year
- Both entities must use the same accounting standards
The transferred losses are still subject to the 75% utilisation cap at the receiving entity level — meaning the profitable entity can only use transferred losses to offset up to 75% of its own taxable income in that period.
The QFZP exclusion — critically important for free zone groups:
Free zone companies that have claimed QFZP status cannot participate in Article 38 loss transfers — as either the transferring or the receiving entity. If your group includes a QFZP entity alongside mainland entities, losses from the QFZP cannot be shared with the mainland companies and mainland losses cannot be transferred to reduce the QFZP’s non-qualifying income.
For groups that include both QFZP and mainland entities, the choice between maintaining QFZP status (0% on qualifying income) and participating in group loss transfers (9% but full loss flexibility) deserves careful modelling before the QFZP election is made or renewed. Our financial reporting and corporate tax teams assist with this analysis as part of annual group tax planning.
Losses That Cannot Be Carried Forward What Is Excluded
The loss carry-forward is not unlimited in scope. Specific categories of loss are excluded from the regime entirely:
Excluded loss categories:
- Pre-regime losses — losses incurred before the business’s first tax period under the Corporate Tax Law (starting on or after June 1, 2023)
- Pre-taxable person losses — losses incurred before the business became a taxable person (for natural persons, before annual business turnover exceeded AED 1,000,000)
- Exempt income losses — losses arising from activities or assets whose income is exempt from corporate tax, including losses from qualifying investments under the participation exemption
- QFZP qualifying income losses — losses from activities taxed at 0% cannot offset non-qualifying income taxed at 9%, and vice versa
The natural person threshold to note: A freelancer or sole proprietor with AED 800,000 turnover in 2024 is not a taxable person — losses incurred in that year cannot be carried forward. If turnover reaches AED 1,500,000 in 2025, that person becomes taxable — but only losses from 2025 onwards are available to carry forward.
Protecting Your Loss Asset The Practical Steps for 2026
Given the complexity and the permanent consequences of getting this wrong, here is what UAE businesses with carried-forward losses need to do before their next corporate tax return:
Step 1: Calculate your correct tax-adjusted loss Reconcile your accounting loss against your tax computation — adding back non-deductible items and removing exempt income — to confirm the exact tax loss available to carry forward. This is not the same as your accounting loss figure.
Step 2: Document the loss in your corporate tax return Carried-forward losses must be properly declared in your corporate tax return through the EmaraTax portal. The FTA’s June 2026 bulletin confirms that losses must be documented in the return for the period in which they arise — not just relied upon in the period they are offset.
Step 3: Review the SBR decision against your loss position If your revenue is below AED 3 million and you have carried-forward losses, model both options before electing SBR. In many cases, filing a standard return and offsetting losses produces a better long-term outcome even when the current year tax saving from SBR appears attractive.
Step 4: Test ownership changes before transactions close Any planned share sale, investment round, or group restructuring affecting more than 50% ownership must be tested against the business continuity test before the transaction closes.
Step 5: Maintain seven years of supporting records The FTA can review carried-forward losses as part of a corporate tax audit. Records supporting every period in which a tax loss arose must be retained and accessible — including the tax computation, financial statements, and supporting documentation. Our VAT record keeping standards align with this requirement — seven years minimum for tax loss documentation.
The FTA June 2026 Bulletin What It Confirmed
The Federal Tax Authority’s Basic Tax Information Bulletin on Corporate Tax Losses, issued June 25, 2026, is the most recent authoritative guidance on this topic. Key confirmations from the bulletin include:
- Tax losses carry forward indefinitely with no time restriction
- The 75% utilisation cap applies in every profitable period without exception
- The oldest losses must be used before newer ones
- SBR election in any period prevents loss generation and blocks use of existing carried-forward losses during that period (but does not permanently destroy pre-SBR losses — they remain available in future non-SBR periods)
- Article 38 transfers require 75% ownership and both entities must share the same financial year
- Deregistration permanently forfeits all carried-forward losses that have not been used
The full bulletin is available directly from the Federal Tax Authority UAE — and should be reviewed alongside your corporate tax advisor before filing any return that involves loss carry-forward positions.
5 FAQs Corporate Tax Loss Relief UAE
How long can UAE businesses carry forward corporate tax losses? UAE corporate tax losses carry forward indefinitely under Article 37 of Federal Decree-Law No. 47 of 2022. There is no time limit on how long losses can remain available for offset against future profits. However, carried-forward losses can only offset up to 75% of taxable income in any single tax period — meaning the remaining 25% is always taxable, and the loss balance reduces gradually over multiple profitable years rather than all at once.
What is the 75% tax loss utilisation cap in UAE? The 75% cap means that in any tax period where you have carried-forward losses, you can only use them to offset a maximum of 75% of your taxable income for that period. The remaining 25% is taxable at the standard 9% rate. You cannot choose to use a lower percentage to preserve the loss balance — the law requires offset up to the cap. The oldest losses must be applied before newer ones. Any unused losses above the 75% cap roll forward automatically to the next period.
Does electing Small Business Relief in UAE destroy carried-forward tax losses? If SBR is elected in a period during which losses are incurred, those losses are permanently forfeited — they cannot be carried forward or transferred. However, losses carried forward from prior non-SBR periods are not permanently destroyed by an SBR election — they are simply suspended during the SBR period and remain available in future periods when SBR is not elected. The most dangerous scenario is a loss-making startup that elects SBR in its first profitable year and permanently loses the losses from its loss-making years. Always model both options before electing.
Can UAE corporate tax losses be transferred between group companies? Yes — under Article 38, loss-making entities can transfer their losses to profitable entities within the same UAE corporate group, provided both entities have at least 75% common ownership, are UAE resident juridical persons, are not exempt persons or QFZPs, share the same financial year, and use the same accounting standards. The transferred losses are subject to the 75% utilisation cap at the receiving entity level. Free zone companies claiming QFZP status cannot participate in Article 38 loss transfers as either the transferring or receiving party.
What happens to UAE corporate tax losses if the business is sold or deregistered? If more than 50% of ownership changes and the business also fundamentally changes its activities, carried-forward losses are permanently forfeited. If the same or similar business activity continues despite the ownership change, losses survive. If the business deregisters from corporate tax entirely, all remaining carried-forward losses are permanently forfeited at the point of deregistration. For this reason, any planned deregistration, merger, or acquisition involving a business with significant accumulated losses should be reviewed by a corporate tax specialist before the transaction closes.
Your Tax Loss Is a Real Asset Treat It Like One
A carried-forward tax loss is not just an accounting entry. At the 9% corporate tax rate, every AED 1,000,000 in carried-forward losses represents up to AED 67,500 in future corporate tax that your business will not pay. For a startup with AED 3,000,000 in accumulated losses, that is a potential AED 202,500 tax shield sitting on your balance sheet — provided the loss is correctly documented, the SBR trap is avoided, and ownership changes are managed without triggering the forfeiture conditions.
At JASM Accounting, our corporate tax specialists help UAE businesses across Dubai, Abu Dhabi, Sharjah, and all free zones identify, document, and protect their corporate tax loss positions — from the correct tax computation of the loss itself, to corporate tax registration and annual return filing through our corporate tax services, and integration with your accounting outsourcing function to ensure the records that support your loss claim survive any FTA review.
📞 Book your free corporate tax loss review today: jasmaccounting.ae/contact
