As the authorities in UAE announced the introduction of corporate tax and which will be implemented on 1st June 2023. According to the UAE corporate law, a taxable entity will be subjected to a 9% corporate tax from the start of their relative financial year on or after 1st June 2023. A corporate entity that is engaged in Business activities can lead to business losses such as the expenses incurred is more than the revenue earned. During that tax period, the taxable income will be negative after calculations and this negative taxable income is called Tax Loss.
Tax Loss Relief Under UAE Corporate Tax Law A Tax loss incurred can be offset in the tax period against the Taxable income of the successive Tax Period for each Tax Period. This act can benefit the overall tax liability payable under the corporate tax because the loss adjusted against Taxable income may reduce the Taxable Income. The amount of Tax Loss cannot exceed seventy-five percent (75%) of the taxable income for reducing the taxable income. The tax loss carried forward must be set off against the Taxable Income of the subsequent Tax Period. This is needed to be done before the remaining tax Loss is carried forward to the succeeding Tax Period.
When Can Taxable Entities Not Claim Tax Loss Relief Under The UAE Corporate Tax Law? A tax loss relief cannot be claimed for the losses where they were incurred:
- Before the commencement date of the UAE corporate tax law.
- By an entity before becoming a taxable entity under the Law.
- On an asset or an activity from which the income is exempt under the Law.
Conditions To Be Fulfilled For Tax Loss The Tax Loss can be transferred against the Taxable income of two taxable persons if these conditions are satisfied:
- Both Taxable Persons are juridical persons.
- Ownership interest: Any of the Taxable Persons have seventy-five percent or more ownership interest in the other, it can be either indirect or direct ownership interest. A third person has seventy-five or more ownership interests in both the Taxable persons.
- Both Taxable persons are residents.
- Both taxable Persons prepare their financial statements as per the same accounting standards.
- Both taxable persons are not exempt persons, and both are not Qualifying Free Zone Persons.
When a Tax Loss is transferred between two Taxable Persons then this will head to:
- Reduction in Taxable Income
- Limitation to set off
- Reduction in Tax Losses
The Tax Loss will be carried forward as per Article 37. But there are some limitations on utilization and carry forward of the Tax Loss. Certain conditions must be complied with to carry forward the Tax losses:
- Ownership interest of Same Person
- Conduct similar or the same business activity
Corporate tax is going to be implemented soon and there is a need to know all the possibilities in taxation such as tax loss under UAE Corporate Tax Law. It is important for you to understand and know all the rules and regulations of corporate tax. ebs is assisting corporations in knowing about their requirement and taxation status for UAE corporate tax and VAT. Reach out to our accountants for a meaningful discussion on corporate tax returns and their regulations.