Managing Tax Loss in UAE
With the recent introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of
Corporations and Businesses in the United Arab Emirates (UAE), businesses are
entering a new era of taxation. We will discuss how UAE-based businesses manage to
settle their tax losses, exploring the process, importance, and role of professional
experts in facilitating this crucial aspect of corporate taxation.
Tax Loss Relief in UAE:
When businesses in the UAE face tough financial times and experience losses, they
can use a strategy called tax loss relief. This helps them pay less in taxes and supports
them in recovering and staying in business. According to Article 37 of the UAE
Corporate Tax Law, businesses can carry forward their losses to future times.
The Corporate Tax Law allows Tax Losses incurred in one Tax Period to be offset
against the Taxable Income of a subsequent Tax Period under certain conditions.
If a Taxable Person incurred a Tax Loss in a given Tax Period, this Tax Loss in UAE may be
used to reduce the Taxable Income of subsequent Tax Periods. This provision ensures
that a Taxable Person is able to carry forward and utilize their accumulated Tax Losses
to reduce the Taxable Income earned in subsequent Tax Periods. But the amount of
Tax Losses that can be utilized to reduce the Taxable Income for each Tax Period.
Specifically, the amount of Tax Losses that can be used is limited to 75% of the Taxable
Income in any Tax Period before any Tax Loss relief has been applied. And also the tax
law provides that if a Taxable Person is not able to fully utilize its available Tax Losses
in the following Tax Period, such Tax Losses may be carried forward to a subsequent
Tax Period until the Tax Losses are fully utilized.
This means they get a chance to balance out losses in one area by using profits from
another, which is good for their overall taxable income. While this rule helps businesses,
it’s crucial to know the limits on how much they can carry forward and use in tax relief.
Understanding and using these rules is vital for companies in the UAE to handle their
taxes well.
Limitation on Tax Losses Carried Forward
Tax Losses can only be carried forward by a Taxable Person from one Tax Period to a
subsequent Tax Period where there is either a continuity of ownership or a continuity of
the Business or Business Activity of the Taxable Person.
Specifically, in order for a Tax
Loss to be carried forward, the same Person or Persons must have continuously owned
at least a 50% ownership interest in the Taxable Person from the beginning of the Tax
The period in which the Tax Losses are incurred to the end of the Tax Period in which the tax
Losses are to be utilized. If a Taxable Person does not maintain sufficient
ownership continuity,
Tax Losses can nevertheless be carried forward where the Taxable Person continues to
conduct the same or a similar Business or Business Activity in the Tax Period that the
Tax Losses are to be utilized before the change of ownership occurs.
Transfer of Tax Loss in UAE:
Article 38 of the UAE Corporate Tax Law sets up rules for companies to move their
financial losses around, balancing out losses and profits. This can help them pay less in
taxes. While it provides helpful guidelines, it’s important for companies in the UAE to
understand and follow these rules carefully to avoid any problems with compliance.
Importance of Settlement of Tax Loss in UAE:
By understanding and effectively settling tax losses, with these 3 strategies businesses
can navigate financial challenges, potentially reduce tax liabilities, and ensure
compliance with the relevant regulations, contributing to their overall financial stability
and success in the UAE.
1. Optimizing Taxable Income:
This optimization involves businesses managing their financial affairs to minimize tax
liabilities which contributes to improved financial efficiency and overall profitability.
2. Compliance with Regulations:
Adhering to the rules and laws set by the UAE Corporate Tax Law, safeguards
businesses from penalties and legal complications and maintains a trustworthy and
responsible business reputation.
3. Effective Tax Planning:
Identifying opportunities for deductions, credits, and exemptions while ensuring
compliance with tax regulations.
Process of Settlement of Tax Loss in UAE:
Navigating financial losses in these 3 steps within a structured framework is essential for companies managing their tax responsibilities in the UAE.
1. Carry Forward of Tax Loss:
Businesses must adhere to Article 37, carrying forward tax losses to future periods as
allowed by the UAE Corporate Tax Law.
2. Transfer of Tax Loss:
Article 38 provides a framework for businesses to transfer tax losses strategically,
optimizing their overall taxable income.
3. Offsetting of Tax Loss:
The final step involves businesses offsetting by balancing losses with profits to lower
overall taxes, ensuring a streamlined and optimized tax position.
The Role of Catalyst Taxes:
In the complex world of settling tax losses in the UAE, Catalyst Taxes is a trusted
partner. As premier tax experts, they guide you through settling tax losses seamlessly,
ensuring compliance, smart tax plans, and income optimization.
Settling tax losses is a game-changer in UAE corporate taxation.
As businesses embark on this journey, Catalyst Taxes stands ready to provide expert
guidance and support. Contact Catalyst Taxes today via email at info@catalyst.com or
call +971 54 728 4285 to leverage their expertise in navigating the nuanced process of
settling tax losses in the UAE. Explore their comprehensive services further at Catalyst Taxes
for a seamless and strategic approach to corporate taxation in the UAE.
