The following blog provides the details of the losses that can be carried forwarded and set of against the future profits of the business under UAE Corporate Tax Regime.
The Ministry of Finance (“Ministry”) has not released the final law on the Corporate Taxes as of today yet, however this is extracted from the Public Consultation Document on UAE Corporate Tax released by the Ministry of Finance, UAE and this needs to be re-confirmed with the final law to be issued by the Ministry before taking any decision.
Businesses typically have variations in profit levels over time, and it is not uncommon for a business to incur losses during the start-up phase or because of market circumstances.
A fundamental principle behind the UAE CT regime is that CT is meant to be paid on the total profit of a business over its entire life cycle, as opposed to a single financial period.
How much of the carried forwarded loss can be adjusted against the profit of a tax period under UAE Corporate Tax Regime?
Accordingly, and in line with international best practices, a business will be able to offset a loss incurred in one period against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods.
How long can the losses be caried forwarded under UAE Corporate Tax Regime and what happens to the set off of the carried forwarded losses of there is change in the ownership?
- Tax losses can be carried forward indefinitely provided the same shareholder(s) 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. If there is a change in ownership of more than 50%, tax losses may still be carried forward provided the same or similar business is carried on by the new owners.
- The continuity of shareholder or business requirements do not apply to businesses that are listed on a recognised stock exchange.
Under which all circumstances the loss relief will not be provided under UAE Corporate Tax Regime
No tax loss relief will be available for the following losses:
- Losses incurred before the effective date of CT;
- Losses incurred before a person becomes a taxpayer for UAE CT purposes;
- Losses incurred from activities or assets which generate income that is exempt from UAE CT; or
- Losses incurred by a Free Zone Person that are not attributable to a PE in the mainland.
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