Can tax losses be carried forward in the UAE?

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.

A Taxable Person that has incurred a Tax Loss will be able to use the Tax Loss to reduce its Taxable Income in future Tax Periods (provided the necessary conditions are met, see Section 4.8.2).92 The Taxable Person can carry forward the Tax Loss and offset it against the Taxable Income in subsequent Tax Periods. The Tax Loss carried forward can be used to reduce the Taxable Income in the subsequent Tax Periods by a maximum of 75% of that Taxable Income.93 A Taxable Person cannot claim Tax Loss relief for:94 • losses incurred before the date of commencement of Corporate Tax, • losses incurred before a Person becomes a Taxable Person, or • losses incurred from an asset or activity that generates income which is exempt from Corporate Tax. In certain circumstances, a Tax Loss can also be offset against the Taxable Income of another Taxable Person (see Section 4.8.3). 4.8.1. Tax Loss relief A Taxable Person must first offset the Tax Loss against its own Taxable Income before it can be transferred to another Taxable Person or carried forward to subsequent Tax Periods. If in any Tax Period the Taxable Person is unable to offset the Tax Loss against its own Taxable Income, then it can transfer the Tax Loss to another Taxable Person or carry forward the Tax Loss (subject to meeting the necessary conditions). 95 Whilst transferring the Tax Loss to another Taxable Person is optional, carrying forward any unused Tax Loss is not. For example, if Company A has incurred a Tax Loss of AED 8,000,000 in Year 1, it can transfer the Tax Loss to Company B (assuming the necessary conditions for transfer are met) in Year 1, up to 75% of Company B’s Taxable Income of Year 1. If Company A has any unutilised Tax Loss (say AED 5,000,000), after the transfer to Company B, the remaining Tax Loss must be carried forward by Company A to Year 2 (assuming the necessary conditions for carry forward are met). Continuing from the above, for instance, in Year 2 the Taxable Income of Company A and Company B is AED 4,000,000 and AED 7,000,000, respectively. Company A is required to utilise 3,000,000 (being 75% of its Taxable Income of AED 4,000,000) of the Tax Loss that has been carried forward from Year 1 (i.e. AED 5,000,000) before 92 Article 37 and Article 39 of the Corporate Tax Law. 93 Article 37(2) of the Corporate Tax Law. 94 Article 37(3) of the Corporate Tax Law. 95 Articles 37(4), 38 and 39 of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 44

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.

1 Who should read this information bulletin? Anyone who is responsible for the tax affairs of a Taxable Person who wants to understand: - What is a Tax Loss? What is not a Tax Loss? What relief is available for Tax Losses? How does relief for carried forward Tax Losses work? What are the limitations on the carry forward of Tax Losses? Under what circumstances are Tax Losses forfeited? What are the conditions for the transfer of Tax Losses and what is available for transfer? - What is the impact of electing for Small Business Relief (SBR)? 2 What is a Tax Loss? For Corporate Tax purposes, a Tax Loss arises when deductible expenses exceed income that is subject to Corporate Tax in a given Tax Period. In other words, a Tax Loss is negative Taxable Income computed by adjusting Accounting Income as per the Corporate Tax Law for a given Tax Period. 3 What is not a Tax Loss? Losses incurred before Corporate Tax came into effect on 1 June 2023, losses incurred before a person became a Taxable Person under the Corporate Tax Law, and losses from activities that do not result in Taxable Income (for instance, related to Exempt Income) are not Tax Losses.1 Losses incurred before Corporate Tax was introduced in the UAE cannot be carried forward and offset against the Taxable Income of any Tax Period. 4 What relief is available for Tax Losses? A Taxable Person can carry forward Tax Losses and offset them against its own Taxable Income in future Tax Periods (see Q5). Further, it is also possible to transfer Tax Losses to another Taxable Person and offset them against its Taxable Income (see Q8). 1 Article 37(3) of the Corporate Tax Law.