Can losses be carried forward while claiming Small Business Relief?

Article 4 – Tax Loss Relief 1. Where an election to apply the Small Business Relief is made in a Tax Period, any Tax Losses incurred in such Tax Period cannot be carried forward to any subsequent Tax Periods. 2. Any unutilised Tax Losses incurred in previous Tax Periods where an election to apply the Small Business Relief was not made, may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made, subject to the conditions of Article 37 of the Corporate Tax Law.

Article 37 – Tax Loss Relief 1. A Tax Loss can be offset against the Taxable Income of subsequent Tax Periods to arrive at the Taxable Income for those subsequent Tax Periods. 2. The amount of Tax Loss used to reduce the Taxable Income for any subsequent Tax Period cannot exceed 75% (seventy-five percent) or any other percentage as specified in a decision issued by the Cabinet at the suggestion of the Minister of the Taxable Income for that Tax Period before any Tax Loss relief, except in circumstances that may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister. 3. A Taxable Person cannot claim Tax Loss relief for: a. Losses incurred before the date of commencement of Corporate Tax. b. Losses incurred before a Person becomes a Taxable Person under this DecreeLaw. c. Losses incurred from an asset or activity the income of which is exempt, or otherwise not taken into account under this Decree-Law. 4. 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 this Decree-Law can be utilised.

For further details on small business relief, readers are advised to consult Ministerial Decision No. 73 of 2023 on Small Business Relief, and the Corporate Tax Guide on Small Business Relief. Example 27: Electing for small business relief Mr X operates a Business in Abu Dhabi. He is a Resident Person for Corporate Tax Purposes. His Tax Period ends on 31 December each year. To date, Mr X’s Revenue has never exceeded the small business relief threshold of AED 3,000,000 per Tax Period in any Tax Period. In the most recent Tax Period ending 31 December 2025, Mr X derived Revenue of AED 2,000,000. Mr X is eligible to benefit from small business relief as his Revenue for the 31 December 2025 Tax Period does not exceed AED 3,000,000, which is also the case for previous years’ Tax Periods. In order to benefit from the relief, he must make an election in his Tax Return. Mr X will be treated as having no Taxable Income for the 31 December 2025 Tax Period. This means that he will not have to calculate his Taxable Income, and will have no Corporate Tax liability in the Tax Period. Example 28: Carried forward unutilised Tax Losses when electing for small business relief C LLC is a UAE Resident company. In the Tax Period ending 31 December 2025, C LLC’s Revenue was AED 1,700,000. At the beginning of the Tax Period, C LLC had unutilised Tax Losses of AED 400,000. In the prior year, C LLC’s Revenue did not exceed the AED 3,000,000 relief threshold. C LLC elects for small business relief for the Tax Period ending 31 December 2025. C LLC’s carried forward Tax Losses cannot be used in this Tax Period, but can be carried forward and used in future Tax Periods in which the small business relief is not elected provided the relevant conditions are met. In the Tax Period ending 31 December 2026, C LLC sold a factory to B LLC for AED 5 million, resulting in its Revenue exceeding the AED 3 million (per Tax Period) small business relief eligibility threshold. In this case, C LLC will not be eligible for small business relief for the Tax Period Ending 31 December 2026. C LLC will need to determine its Taxable Income for the 31 December 2026 Tax Period. To the extent C LLC has a positive Taxable Income, it is able to utilise its Tax Losses General Corporate Tax Guide | Corporate Tax | CTGGCT1 88