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Introduction:
On June 1, 2023, the UAE ushered in a significant change with the implementation of corporate tax. Set at a competitive 9%, this tax regime aims to maintain the nation’s appeal to businesses. However, the nuances of corporate tax, especially concerning tax losses, demand attention. In this piece, we delve into the intricacies of tax losses and their implications under the UAE’s corporate tax regime, guided by Federal Law No. 47 of 2022.
Understanding Tax Losses in Corporate Taxation:
What constitutes a tax loss? Simply put, it’s the shortfall resulting from allowable deductions and expenses surpassing taxable income, as defined by tax laws. This deficit, termed as a tax loss, can be carried forward to offset against future taxable income, offering what’s known as carry-forward tax losses. Unlike some jurisdictions, the UAE presently doesn’t allow offsetting against previous years’ profits.
Tax Loss Relief Mechanisms:
Article 37 of the UAE tax law permits businesses to offset tax losses against subsequent taxable income, effectively diminishing their tax liability. However, there’s a caveat; businesses can only offset up to 75% of taxable income in any given tax period.
Furthermore, the mechanism for utilizing carry-forward tax losses is precise: they’re first set off against the immediate subsequent tax period. Any remaining losses are then carried forward to the subsequent period. This approach takes precedence over losses transferred under Article 38.
Exceptions to Tax Loss Relief:
Despite the relief provisions, certain scenarios preclude businesses from claiming tax loss relief. These include losses incurred prior to the introduction of the corporate tax regime, or before a business becomes a taxable entity under the new law. Additionally, losses stemming from exempted assets or activities are ineligible for relief.
Transfer of Tax Losses:
Article 38 introduces the option of transferring tax losses between taxable entities, subject to stringent conditions. Both entities must be legal residents, sharing at least a 75% direct or indirect ownership stake, among other requisites. Notably, this provision doesn’t apply to publicly listed entities.
Conclusion:
Navigating corporate tax losses is paramount for businesses navigating the UAE’s tax landscape. While the UAE offers relief mechanisms, compliance with stipulated conditions is imperative. The ability to carry forward losses and transfer them between entities adds flexibility, yet demands meticulous adherence to regulatory criteria. Given the evolving nature of tax laws, seeking professional guidance, such as that offered by Abacus Tax & Accounting, ensures compliance and informed decision-making. Stay abreast of the latest updates and regulations to steer your business confidently in the UAE’s corporate tax arena.
Consult Abacus Tax & Accounting:
For tailored tax advisory services aligned with the latest UAE tax laws, consult Abacus Tax & Accounting. Our team of seasoned tax professionals stands ready to provide expert guidance tailored to your business needs. Book a consultation today for proactive, up-to-date tax advice.