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UAE Corporate Tax: Are Businesses Allowed to Carry Forward Their Losses?

It is common for businesses to incur losses due to adverse market conditions or business decisions going wrong or other factors. Small businesses are usually at the receiving end of adverse conditions, leading to losses. Fortunately, the proposed UAE Corporate Tax allows businesses to offset a loss incurred in one period against the taxable income of future periods. Consulting with corporate tax consultants in Dubai can advise the businesses on how to leverage the carry forward provision for losses.

However, businesses must address certain key concerns regarding the carry forward of losses. These concerns include how long they can carry forward the losses and what are the major conditions and requirements to carry forward losses under the UAE corporate tax. The corporate tax in the UAE is set to be effective from June 1st 2023. Therefore, relevant businesses must have a clear understanding of the loss carry-forward provision to prepare for the new tax. Corporate tax advisors in Dubai can help them gain a better understanding of the loss carry-forward provision.

The following article will enlighten you further about the tax loss carry forward provision. However, you need to remember that the government is yet to issue a Final Law on the UAE Corporate Tax and changes may occur to the provisions. Meanwhile, let’s explore the key aspects of the loss carry-forward provisions as envisioned in the UAE Corporate Tax Public Consultation Document.

What is the Maximum Amount of Losses That Can Be Carried Forward?

As per the UAE Corporate Tax regime, businesses are allowed to offset a loss incurred in one tax period against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods. However, a business is required to pay taxes on 25% of its taxable income even if all the accumulated losses are not entirely offset. Corporate tax consultants in Dubai can help you to determine the amount of tax loss you can carry forward to future tax periods.

How Long You Can Carry Forward the Losses?

As per the UAE Corporate Tax Public Consultation Document, businesses can carry forward the losses indefinitely. Corporate tax advisors in Dubai can provide you with the conditions set out by the Ministry of Finance regarding this.

What Are the Conditions to Carry Forward Losses Indefinitely?

The government has outlined certain conditions subject to which the businesses can carry forward their losses. Corporate tax consultants in Dubai can help the businesses to assess whether they fulfil the conditions to adjust the carried forward losses against future taxable profits. Businesses can carry forward the losses to a future tax period if they meet the following conditions:

1. Continuity of Ownership Requirement

A business can carry forward its losses indefinitely to future tax periods if the same shareholder or shareholders hold at least 50% of the share capital from the start of the period a loss is incurred to the end of the period in which a loss is offset against taxable income. Companies providing bespoke corporate tax services in Dubai can help you determine if you meet this test.

2. Continuity of Business Requirements

A business can still carry forward its losses even if it fails to meet the continuity of ownership test. Such businesses can carry forward the losses if they meet the continuity of business test. Businesses subject to a change in ownership of more than 50% can carry forward their tax losses provided the new owners carry out the same business.

3. Special Conditions for Listed Companies

It is important to note that the continuity of business or continuity of ownership tests do not apply to companies listed on a recognised stock exchange. Businesses listed on a recognised stock exchange need to wait for the issuance of the final UAE Corporate Tax Law to see if they still are able to carry forward their tax losses.

What Are the Tax Losses That Cannot Be Carried Forward?

The UAE government has made some exceptions to the tax loss carry forward provision. The following losses can’t be carried forward to future tax periods as per the existing regulations of corporate tax in the UAE:

  1. Losses incurred before the effective date of UAE corporate tax (June 1st 2023)
  2. Losses incurred by persons before they become a taxpayer for the purpose of corporate tax
  3. Losses incurred on activities or assets that generate income exempt from the corporate tax
  4. Losses incurred from activities or assets which generate income that is exempt from UAE CT; or
  5. Losses incurred by a Free Zone Person that cannot be attributed to a Permanent Establishment (PE) in the mainland

Navigate Tax Hurdles with Corporate Tax Consultants in Dubai

Businesses preparing to embrace the new corporate tax are advised to seek the advice of the best corporate tax consultants in Dubai such as Jitendra Chartered Accountants (JCA). Many provisions of the UAE corporate tax, such as the tax loss carry-forward, are governed by complex conditions and requirements. JCA has a team of highly qualified tax consultants who can advise you on the relevant tax provisions to make appropriate tax-related decisions.

We can help you navigate the tax complexities by offering bespoke corporate tax services in Dubai such as corporate tax registration, corporate tax return filing, auditing of financial statements, record-keeping for tax purposes etc. JCA can also advise you on the potential implications of UAE corporate tax on your company and the tax benefits of forming a corporate tax group. Consult with us today to see how our corporate tax advisors in Dubai can help you prepare for the corporate tax.

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