Exploring Tax Losses and Their Impact on UAE Corporate Tax

As a business operating in the United Arab Emirates, understanding corporate tax, tax losses, and their implications is crucial. This article sheds light on corporate tax losses and their impact on businesses in the UAE, as well as their implications on corporate tax.

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What is Corporate Tax?

Corporate tax refers to the direct taxes levied by the government on a company’s taxable income for a specific accounting period. This tax serves as an additional source of government revenue. The introduction of corporate tax in the UAE aims to comply with international standards and diversify the UAE’s economy beyond oil dependency. The new tax structure will come into effect in June 2023, with a rate of 0% for income below AED 375,000 and 9% for income exceeding AED 375,000.

Tax Losses and Their Implications on UAE Corporate Tax

Tax loss provision allows a taxable person to carry forward their tax losses to future years and offset them against profits, reducing their tax liability.

Tax loss from a corporate tax perspective is when the total deductions allowed to an entity exceed the taxable income, resulting in a negative taxable income

Key Articles on Tax Losses

Article 37: Tax Loss Relief

A tax loss can be set off against the taxable income of a subsequent period to determine the net taxable income.

– The amount of tax loss used to reduce taxable income cannot exceed 75% of the taxable income for that period unless specified otherwise by the cabinet.

Tax losses must be set off against the taxable income of the subsequent period before carrying it forward to another period.

– Tax loss relief cannot be claimed for:

  – Losses incurred before the commencement of corporate tax.

  – Losses incurred before a person was considered a taxable person.

  – Losses from activities or assets exempt from corporate tax.

Example: If a registered taxpayer has a taxable income of AED 200,000 and a carried-forward loss of AED 175,000, 75% of AED 200,000 (i.e., AED 150,000) can be set off, reducing the taxable income to AED 50,000. The remaining AED 25,000 loss can be carried forward to the next year.

Article 38: Transfer of Tax Loss

– Allows a taxable person to transfer their tax loss to another taxable person if certain conditions are met:

  – Both taxable persons are juridical and residents of the UAE.

  – One taxable person has at least 75% direct or indirect ownership in the other, or a third person has 75% ownership in both.

  – Common ownership must exist from the beginning to the end of the tax loss period.

  – Taxable persons are not exempt or qualifying free zone persons.

  – Financial years and accounting standards of both taxable persons must align.

Article 39: Limitation on Tax Loss Carried Forward

– Tax losses can be carried forward and utilized if:

  – The same person owns at least 50% of the taxable person from the start of the loss period to the end of the set-off period.

  – The taxable person continues similar business activities following a change in ownership of more than 50%.

  – For group companies, tax losses can be set off if there is 75% or more common ownership and compliance with all other requisites.

This does not apply to taxable persons whose shares are listed on a recognized stock exchange.

How Unicorn Global Solutions Can Assist You with Tax Filing

Understanding tax losses and their implications on UAE corporate tax is essential for businesses. If you need expert assistance in implementing corporate tax strategies, Unicorn Global Solutions is here to help! Our team of experienced tax professionals will guide you through the complex process of corporate tax implementation, ensuring compliance with all relevant laws while minimizing your tax burden. From tax planning to compliance and reporting, we provide comprehensive support. Text us on WhatsApp or call us today.

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