What is Tax Loss Relief?

Think of Tax Loss Relief as a safety net. If your company makes a loss in one year, you can use that loss to reduce the taxable income in future years. This means you won’t pay tax on the full profit in those future years, only on what remains after deducting the earlier loss.

But there are a few important rules:

• You can’t use the entire loss all at once.
  In any future tax year, you can only use your tax loss to offset up to 75% of that year’s taxable income (unless the government later changes that percentage).

Scenario
Imagine you own a small catering business.In 2025, you made a loss of AED 100,000 (due to low orders and high rent) and in 2026, your business picks up, and you make a profit of AED 120,000.Under Tax Loss Relief, you can use the 2025 loss to reduce your taxable income in 2026.But only up to 75% of your 2026 profit can be reduced using the loss.So, 75% of AED 120,000 = AED 90,000can beutilized, and you’ll only pay tax on the remaining AED 30,000.

• Some losses don’t qualify.
  You can’t claim relief for:
  • Losses from before Corporate Tax started.
  • Losses from before you officially became a “Taxable Person.”
  • Losses from tax-exempt income or activities (like exempt assets or free zone income not subject to tax).
• Use it or carry it forward (in order).
  You must use your tax losses against taxable income in the next available tax year before rolling them forward again or transferring them to another company (which we’ll get into next).

Scenario
Imagine you own a small trading business.In 2025, you made a loss of AED 120,000and in 2026, your business picks up, and you make a profit of AED 70,000. So, you can useAED 52,500 (75% of 70,000) in 2026 and the remainingloss which is AED 67,500 can be carried forward to 2027.

 Can You Transfer Tax Losses to Another Company? Yes — But Only If…

Let’s say your company is part of a group. One of the entities in your group made a loss, while another made a profit. Can you transfer the loss from one to the other to reduce the group’s overall tax bill? Yes, but only if all the following conditions are met:

✅ Both companies must be:

• Registered in the UAE (Resident Persons)
• Separate legal entities (Juridical Persons)

✅ They must have 75% ownership (direct or indirect) between them or via a common shareholder.

✅ That ownership link must be in place from the time the loss happened to the time it’s used.

✅ Neither company can be:

• An Exempt Person (e.g. a government entity or charity), or
• A Qualifying Free Zone Person (subject to special rules)

✅Both companies must:

• Use the same accounting standards
• Have the same financial year-end

If all these boxes are ticked, the company that made the loss can transfer it to the other. The receiving company can then use the transferred loss but again, subject to the 75% rule to reduce its taxable income.

What Happens If There’s a Change in Ownership?

This is a crucial area for growing companies, especially if you’re planning to sell a stake or restructure.

To carry forward tax losses, the law requires continuity of ownership and business:

🔹50% ownership must remain unchanged from the year the loss was made until the year it’s used.

🔹If more than 50% of ownership changes, you can still use the losses if you continue to operate the sameor asimilarbusiness.

So, what counts as “similar”?

• Using the same assets as before
• No major changes in core operations
• Any changes that do occur should be related to developing or expanding existing activities

🔸Good news for listed companies: If your business is listed on a Recognized Stock Exchange, this restriction does not apply.