A business loss is never ideal.

But under the UAE Corporate Tax regime, a genuine Corporate Tax Loss may become valuable later.

It may help reduce taxable income in future tax periods and lower the Corporate Tax payable by the business.

However, there is one important point:

Not every accounting loss is a Corporate Tax Loss.

Before a company carries forward or uses a loss, it must first check whether the loss qualifies under the UAE Corporate Tax rules.

The Big Question

Can today’s loss reduce tomorrow’s tax?

The answer is:

Yes – but only if it is a valid Corporate Tax Loss.

A Corporate Tax Loss generally arises when a business has deductible expenses that are higher than the income subject to Corporate Tax for a tax period.

In simple terms:

Taxable income is negative = Corporate Tax Loss

But the company must first adjust its accounting profit or loss in line with the UAE Corporate Tax rules.

Example: BXG Solutions LLC

BXG Solutions LLC is a UAE company providing IT consultancy services.

In 2025, the company has a difficult year.

Particulars	Amount
Revenue from taxable services	AED 800,000
Deductible business expenses	AED 1,100,000
Corporate Tax Loss	AED 300,000

In this case, BXG has a Corporate Tax Loss of AED 300,000.

This loss may be carried forward and used against future taxable income, subject to the UAE Corporate Tax rules.

Tax Loss Is Not Always the Same as Accounting Loss

A company may show a loss in its accounts.

But that does not automatically mean the same amount can be carried forward as a Corporate Tax Loss.

Why?

Because some income may be exempt.

Some expenses may not be deductible.

And some losses may relate to activities that do not generate taxable income.

Example

BXG shows an accounting loss of AED 500,000.

However, part of the loss relates to exempt income and non-deductible expenses.

Particulars	Amount
Accounting loss as per books	AED 500,000
Less: loss related to exempt income	AED 150,000
Less: non-deductible expenses	AED 50,000
Actual Corporate Tax Loss	AED 300,000

BXG cannot simply carry forward the full accounting loss of AED 500,000.

Only the valid Corporate Tax Loss of AED 300,000 may be available for carry forward.

The 75% Rule: Losses Cannot Reduce All Future Profit

A valid Corporate Tax Loss may be carried forward and used in future tax periods.

However, old losses cannot normally reduce 100% of taxable income in a profitable year.

The maximum Tax Loss relief is limited to 75% of taxable income before Tax Loss relief.

Example

In 2026, BXG becomes profitable.

Particulars	Amount
Taxable income before loss relief	AED 1,000,000
Brought forward Tax Losses	AED 3,000,000

Maximum loss allowed:

AED 1,000,000 × 75% = AED 750,000

Particulars	Amount
Current year taxable income	AED 1,000,000
Less: Tax Loss used	AED 750,000
Taxable income after loss relief	AED 250,000
Loss carried forward to future years	AED 2,250,000

The 75% limit is applied to the current year taxable income, not to the total old loss balance.

So even though BXG has AED 3,000,000 of carried forward losses, it can only use AED 750,000 in that year.

The remaining AED 2,250,000 may be carried forward to future tax periods.

Losses Can Be Carried Forward – But They Must Be Tracked Properly

A valid Corporate Tax Loss can generally be carried forward indefinitely.

However, when the company becomes profitable, carried forward losses must be used to the fullest extent possible, subject to the 75% limit.

The oldest losses should be used before newer losses.

This means companies should maintain a clear year-wise Tax Loss schedule.

Tax Period	Tax Loss Generated	Loss Used	Balance Carried Forward
2024	AED 500,000	AED 0	AED 500,000
2025	AED 300,000	AED 0	AED 800,000
2026	AED 0	AED 600,000	AED 200,000

This schedule is important because the FTA may ask for supporting calculations and records.

What Losses Cannot Be Carried Forward?

This is where many businesses may make mistakes.

The following are generally not treated as Corporate Tax Losses:

• losses incurred before UAE Corporate Tax became effective;
• losses incurred before the person became subject to Corporate Tax;
• losses from activities that do not generate taxable income;
• losses connected to exempt income;
• certain losses where the Participation Exemption applies;
• losses arising during a tax period where Small Business Relief is elected.

Before reporting a loss in the Corporate Tax Return, the company should check the nature of the loss carefully.

Exempt Income and Tax Losses

Exempt income is income that is not subject to Corporate Tax.

Examples may include:

Type of Income	Corporate Tax Treatment
Dividend from a UAE resident juridical person	Exempt
Foreign dividend, subject to conditions	May be exempt
Capital gain on a qualifying shareholding	May be exempt
Foreign permanent establishment income, if exemption is elected	Exempt

Why does this matter?

Because expenses or losses connected to exempt income are generally not deductible for Corporate Tax purposes.

Example

BXG receives AED 100,000 as a dividend from a UAE company.

This dividend is exempt.

BXG also incurs AED 20,000 in professional fees directly connected to earning this dividend.

Particulars	Corporate Tax Treatment
Dividend income	Exempt
Related expense	Not deductible
Tax loss from this activity	Not allowed

Exempt income cannot normally create or increase a Corporate Tax Loss.

Participation Exemption: Related Losses May Also Be Excluded

The Participation Exemption may apply to qualifying shareholdings.

It can cover:

• foreign dividends;
• capital gains on qualifying shares;
• foreign exchange gains or losses related to qualifying shares;
• impairment gains or losses related to qualifying shares.

The important point is simple:

If the gain would be exempt, the related loss is generally not deductible.

Example

BXG owns qualifying shares in a foreign subsidiary.

It sells the shares and makes a loss of AED 100,000.

If the Participation Exemption applies, the loss is not deductible.

This means BXG cannot use the AED 100,000 loss to increase its Corporate Tax Loss.

Qualifying Income Is Not the Same as Exempt Income

Businesses, especially Free Zone companies, should not confuse Qualifying Income with Exempt Income.

Point	Exempt Income	Qualifying Income
Corporate Tax treatment	Excluded from taxable income	Included, but may be taxed at 0% if conditions are met
Main example	UAE dividend or qualifying capital gain	Qualifying Free Zone income
Tax rate	Not taxable	0%, if conditions are satisfied
Loss impact	Related losses are generally not deductible	Must be reviewed under Free Zone Corporate Tax rules

In simple terms:

Exempt income sits outside the taxable income calculation.

Qualifying Income remains within the Corporate Tax system, but may be taxed at 0% if Free Zone conditions are met.

For a Free Zone company, it is important to separate:

• Qualifying Income taxed at 0%;
• non-qualifying taxable income taxed at 9%;
• exempt income excluded from taxable income.

This classification can affect how tax losses are calculated, used, or transferred.

Small Business Relief: Helpful, But Review the Loss Impact

Small Business Relief is a Corporate Tax relief available to eligible small businesses.

It may apply where revenue is AED 3,000,000 or less in the relevant tax period and previous tax periods, for tax periods ending on or before 31 December 2026.

If Small Business Relief is elected, the business is treated as having no taxable income for that tax period.

This can be useful.

But there is one important consequence:

No Corporate Tax Loss is created for that year.

Example

BXG has revenue of AED 2,000,000 in 2025 and is eligible for Small Business Relief.

If BXG elects for Small Business Relief:

Particulars	Treatment
Taxable income	Treated as nil
Corporate Tax payable	Nil
Tax loss for the year	Not created
Old tax losses	Cannot be used in the SBR year
Old tax losses for future years	May continue to be carried forward

Small Business Relief may be helpful, but it should be reviewed carefully where the business has losses or expects to generate losses.

It may reduce tax for the year, but it does not create a Tax Loss for that year.

Ownership Change: Old Losses May Be at Risk

Tax losses may be restricted if more than 50% ownership of the company changes.

Where this happens, old losses can generally continue to be used only if the company continues the same or a similar business activity.

Example

BXG has AED 1,000,000 of carried forward Tax Losses from IT consultancy.

Later, 70% of the shares are sold to new owners.

After the sale, the new owners change the business from IT consultancy to real estate trading.

In this case, BXG’s old Tax Losses may be restricted or lost.

Before selling shares, restructuring ownership, or changing business activity, the company should review its Tax Loss position.

Can One Group Company Use Another Company’s Losses?

Tax losses may be transferred between group companies, but only if strict conditions are met.

The main conditions include:

• both entities must be juridical persons;
• both must be UAE Resident Persons;
• there must generally be at least 75% common ownership;
• neither company should be an Exempt Person;
• neither company should be a Qualifying Free Zone Person;
• both companies should have the same financial year-end;
• both companies should use the same accounting standards.

This can be useful for groups.

But it should not be applied without proper review.

Practical Tax Loss Checklist

Before carrying forward or using a Tax Loss, ask:

Question	Why It Matters
Is it an accounting loss or a Corporate Tax Loss?	The two may be different
Did the loss arise after UAE Corporate Tax became applicable?	Pre-Corporate Tax losses are not allowed
Does the loss relate to taxable income?	Only taxable activity losses may qualify
Is any part linked to exempt income?	It may not be deductible
Is Participation Exemption involved?	Related losses may be excluded
Is Small Business Relief elected?	No Tax Loss arises in that year
Has ownership changed by more than 50%?	Old losses may be restricted
Is the company a Qualifying Free Zone Person?	Loss transfer may not be available
Has the 75% rule been applied correctly?	Only up to 75% of current taxable income may be reduced
Are records and workings available?	The FTA may request support

Final Takeaway

Tax losses can be valuable.

But only if they are calculated, supported, and used correctly.

The main points to remember are:

An accounting loss is not automatically a Corporate Tax Loss.

Only losses from taxable business activities can generally be carried forward.

Losses connected to exempt income are generally not allowed.

Qualifying Income is different from Exempt Income.

Small Business Relief may prevent a Tax Loss from arising in that year.

Old Tax Losses can generally reduce only up to 75% of future taxable income.

Ownership changes and Free Zone status can affect how losses are used.

A properly prepared Corporate Tax computation, supported by clear workings, is essential to protect the company’s tax position.