UAE tax treatment for Net operating losses

 The Corporate Tax (CT) Law stipulates that a business is permitted to offset tax losses against the taxable income of future tax periods when determining the taxable income for that specific period. The offset for any given tax period is limited to a maximum of 75% of the taxable income for that period, unless otherwise specified by a Cabinet decision. Any remaining tax losses may be carried forward to subsequent tax periods indefinitely. 

A taxable entity is ineligible to claim tax loss relief for losses incurred prior to the initiation of the UAE CT regime, losses sustained before it became a taxable entity under the CT Law, and losses arising from assets or activities whose income is exempt or not considered under the CT Law. 

The UAE CT framework permits the transfer of tax losses among juridical tax resident group entities that share 75% or more common ownership, provided that certain conditions are met. These conditions include maintaining the same financial year, adhering to the same accounting standards, and not being classified as an exempt person or a Qualifying Free Zone Person (QFZP). 

To prevent the transfer of tax losses through ownership changes in taxable entities that are not publicly traded, the CT Law mandates that tax losses can only be carried forward and utilized by a taxable entity if the following conditions are satisfied: 

1. The same individual or individuals have continuously held at least a 50% ownership interest in the taxable entity from the start of the tax period in which the tax loss was incurred until the end of the tax period in which the tax loss, or a portion thereof, is offset against the taxable income of that period. 

2. The taxable entity has continued to operate the same or a similar business following a change in ownership exceeding 50%.