How Should Losses Be Handled Under The UAE Corporate Tax

Businesses frequently suffer losses as a result of adverse market conditions, poor business decisions, or other factors. Small businesses are frequently the victims of adverse conditions, which would end up resulting in Corporate Tax losses in the UAE. Fortunately, the proposed UAE Corporate Tax allows businesses to offset a loss in one period against future taxable income. Consultation with corporate tax consultants in Dubai can help businesses understand how to maximize the carry-forward provision for losses.

However, businesses must address several key concerns regarding loss carryover. These concerns include the length of time they can carry forward losses and the major conditions and requirements for carrying forward losses under UAE corporate tax. The UAE's corporate tax is set to go into effect on June 1st, 2023. As a result, in order to prepare for the new tax, relevant businesses must have a thorough understanding of the loss carry-forward provision. Corporate tax advisors in Dubai can help them gain a better understanding of the loss carry-forward provision.

You can learn more about the tax loss carry forward provision in this article. You must keep in mind, that the government has not yet published a Final Law on the UAE Corporate Tax, and the provisions are subject to change. Let's have a look at the main features of the loss carry-forward provisions as they are described in the UAE Corporate Tax Public Consultation Document in the interim.

UAE Corporate Tax Losses

The rules and regulations relating to the treatment of tax losses under UAE corporate tax law are outlined in Section 5 of the proposed UAE corporate tax.

Businesses, by definition, go through cycles of profit and loss, where they make money one year and lose money the next. This is more common at the start-up stage of a business and may occur due to market conditions. It would be unfair to the business if they paid taxes when they made profits and lost money when they lost money.

Under the proposed corporate tax law, UAE businesses that incur tax losses in certain years can offset such losses against the taxable income of future financial periods. The limitation is that the maximum loss that can be set off in any period is 75% of the taxable income of the succeeding year.

How To Treat Losses Under UAE Corporate Tax

Carry forward of tax loss is a provision that allows a taxpayer to carry forward tax losses from one year to the next and offset them against future profits to reduce future tax liability.

Under the proposed legislation, a company can carry forward losses from one fiscal period for an indefinite period of time. To claim such a benefit, however, 50% of the company's shareholders must remain the same from the beginning of the period in which the business suffered a loss until the end of the period in which the loss is offset against taxable income.

Limitations on carrying forward a tax loss

The following losses cannot be offset or carried forward to a future period under the proposed law: -

Losses incurred prior to the effective date of CT (in relation to that specific business);Losses incurred prior to becoming a taxpayer for the purposes of UAE CTLosses incurred as a result of activities or assets that generate income exempt from UAE CTLosses suffered by a Free Zone Person that cannot be attributed to a PE on the mainland

Note From Reyson Badger

Businesses preparing to implement the new corporate tax should consult with the best corporate tax consultants in Dubai, such as Reyson Badger. Many UAE corporate tax provisions, such as the tax loss carry-forward, are subject to complex conditions and requirements. Reyson Badger has a team of highly qualified tax consultants who can advise you on the relevant tax provisions so that you can make the best tax-related decisions.

We can assist you in navigating the tax complexities by providing bespoke corporate tax services in Dubai such as corporate tax registration, corporate tax return filing, financial statement auditing, tax record-keeping, and so on. Reyson Badger can also advise you on the potential effects of UAE corporate tax on your business, as well as the tax advantages of forming a corporate tax group.