Transfer of Tax Losses

Publish On : 25-07-2025

The UAE Corporate Tax regime, introduced through Federal Decree-Law No. 47 of 2022, allows businesses to carry forward and transfer tax losses, offering a significant opportunity for strategic tax planning. These provisions are designed to support business continuity and economic growth, especially for startups and expanding corporate groups.

Sheikh Anwar Accounting & Auditing LLC explains the rules, eligibility, conditions, and limits related to transferring tax losses under UAE Corporate Tax Law.

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📜 Legal References

The rules related to tax loss transfer are outlined under:

• Article 37 – Carry forward and utilization of tax losses

• Article 38 – Transfer of tax losses between taxable persons

• Cabinet Decision No. 73 of 2023

• Ministerial Decision No. 134 of 2023

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💼 What Is a Tax Loss?

A tax loss arises when the total deductible expenses exceed the taxable income in a given tax period. This loss can be used to reduce taxable income in future years or transferred to other eligible group entities.

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🔁 Transfer of Tax Losses – Key Overview

Under Article 38, a taxable person can transfer tax losses to another taxable person if:

1. Both parties are juridical persons (i.e., companies)

2. They are resident in the UAE

3. 75% or more common ownership exists between them, directly or indirectly

4. The recipient is not an exempt person or a Free Zone Person with 0% tax status

5. Both companies are subject to UAE Corporate Tax

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⚙️ Mechanics of Tax Loss Transfer

• A tax loss can be transferred from one group entity to another to offset taxable profits of the recipient.

• The maximum amount of tax losses that can be transferred is 75% of the recipient's taxable income in a given period.

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🧮 Example

Company Position Amount

Company A Tax Loss AED 500,000

Company B Taxable Income AED 1,000,000

✅ Company B can utilize up to 75% of AED 1,000,000 = AED 750,000

But since Company A has only AED 500,000 in losses, the full AED 500,000 can be transferred.

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📌 Conditions for Loss Transfer

Requirement Details

Legal Structure Must be juridical persons

Tax Residency Both must be UAE resident for tax purposes

Common Ownership At least 75% direct or indirect ownership

Tax Status Both must be subject to Corporate Tax

Tax-Free Zones Free Zone Persons at 0% rate cannot receive losses

No Exempt Persons Entities such as Government bodies or charities cannot participate

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🔒 Restrictions on Use

• Losses can only be used to offset taxable income, not exempt income.

• No offset allowed against income that benefits from 0% Free Zone tax regime.

• Losses generated before Corporate Tax Law took effect (before June 2023) cannot be transferred.

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🔁 Carry Forward of Unused Losses

• If the transferred loss exceeds the current year’s 75% cap, the unused portion can be carried forward by the recipient for future years (as long as conditions are still met).

• The entity that originally incurred the loss can also carry it forward for up to future periods if not transferred.

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👥 Group Taxation vs. Tax Loss Transfer

Transfer of tax losses is not the same as group taxation.

Comparison Tax Loss Transfer Tax Group

Filing Separate returns Single consolidated return

Ownership ≥75% ownership ≥95% ownership

Status Resident companies only Unified tax group

Loss Sharing Allowed up to 75% of income Full income/loss offset

✅ Tax loss transfer is a simpler method when group consolidation is not desired or feasible.

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🧠 Expert Insight – Sheikh Anwar Accounting & Auditing LLC