How much of taxable income can be offset by carried forward losses?

Article 7 – Relief for Pre-Grouping Tax Losses 1. For the purposes of Clause (3) of Article (42) of the Corporate Tax Law, the amount of the pre-Grouping Tax Losses of a Subsidiary that can be used to offset the Taxable Income of the Tax Group in a Tax Period shall be the lesser of the following two amounts: a. The Taxable Income of the Tax Group that is attributable to that Subsidiary. b. The Tax Loss that can be used to reduce the Taxable Income of the Tax Group in the relevant Tax Period under Clause (2) of Article (37) of the Corporate Tax Law. 2. Where the calculation of the Taxable Income of a Tax Group, as specified under Clause (1) of Article (42) of the Corporate Tax Law, resulted in a Tax Loss and became a carried forward Tax Loss, any pre-Grouping Tax Losses available to be utilised in a subsequent Tax Period must be offset against the Taxable Income of the Tax Group in that Tax Period in accordance with Clause (1) of this Article before the other carried forward Tax Losses of the Tax Group can be utilised in that same Tax Period, subject to the provisions of Article (37) of the Corporate Tax Law. 3. Where the total pre-Grouping Tax Losses available to be utilised in a Tax Period Ministerial Decision No. 301 of 2024 – As published by the Ministry of Finance 4 exceed the amount specified under Clause (1) of this Article, the Parent Company must determine which Subsidiary’s pre-Grouping Tax Losses remain carried forward Tax Losses of the Tax Group. 4. The provisions of Clause (4) of Article (37) of the Corporate Tax Law shall also apply to pre-Grouping Tax Losses.

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.

5 How does relief for carried forward Tax Losses work? When a Tax Loss related to a Tax Period cannot be used in full in that Tax Period, the balance remains available to offset in future Tax Periods. A Taxable Person can carry forward its own Tax Losses indefinitely into future Tax Periods. Offsetting Tax Losses can reduce the amount of Taxable Income and thus Corporate Tax payable when a Taxable Person generates Taxable Income in future Tax Periods. The total amount of Tax Losses which can be offset in a subsequent Tax Period is limited to 75% of the Taxable Income in that Tax Period before 2 any Tax Loss relief. The oldest Tax Losses are offset before more recent Tax Losses. A Taxable Person is required to offset carried forward Tax Losses to the fullest extent possible before any remainder can be carried forward to further subsequent Tax Periods.3 For example, if a company has AED 1,000,000 of Taxable Income (before Tax Loss relief) in a Tax Period and Tax Losses of AED 3,000,000 carried forward from earlier Tax Periods, it must offset AED 750,000 of those Tax Losses against its Taxable Income for the Tax Period (i.e., 75% of 1,000,000). This would result in Taxable Income of AED 250,000 (AED 1,000,000 less AED 750,000) for the relevant Tax Period and Tax Losses carried forward to the following Tax Periods of AED 2,250,000 (AED 3,000,000 less AED 750,000). It is not possible to choose to offset a lower amount than 75% of Taxable Income and thereby carry forward more Tax Losses to future Tax Periods. Further, a Taxable Person must first utilise its own carried forward Tax Losses before utilising transferred Tax Losses received from another 4 Taxable Person. A Taxable Person must first fully utilise its own carried forward Tax Losses before transferring any remaining Tax Losses to another Taxable Person for a specific Tax Period. 2 3 4 Article 37(2) of the Corporate Tax Law. Article 37(4) of the Corporate Tax Law. Article 37(4) of the Corporate Tax Law.

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