A company records cumulative losses of AED 600,000 in its first two years and earns AED 500,000 in Year 3. Can its Corporate Tax fall to zero? The two accounting figures cannot simply be offset against each other. The AED 500,000 must first be adjusted for tax purposes to establish Taxable Income before historical losses are used. The AED 600,000 must also be reviewed period by period to determine how much qualifies as an eligible Tax Loss.

Under the assumptions in this three-year example, the company must use AED 375,000 of historical Tax Losses in Year 3. Taxable Income falls to AED 125,000, reducing Corporate Tax from AED 11,250 to zero. The remaining AED 225,000 continues to be carried forward: AED 25,000 from Year 1 still ranks ahead of the AED 200,000 balance from Year 2.

Why can an accumulated accounting loss not be used directly for tax relief?

The accumulated loss in the financial statements is only the starting point. Accounting Income must be adjusted for non-deductible expenditure, Exempt Income and other tax items before the Corporate Tax calculation produces Taxable Income or a Tax Loss.

Losses incurred before the UAE Corporate Tax regime took effect, losses incurred before the company became a Taxable Person, and losses connected with assets or activities that generate Exempt Income cannot enter the available Tax Loss balance. A negative retained earnings balance does not, by itself, prove that the company has an equal amount available for carryforward. This treatment is subject to the latest official publication. (Source: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Articles 20 and 37, December 2022.)

We recommend reconciling the financial statements, Corporate Tax Return, general ledger and tax-adjustment workpapers for each Tax Period. Every balance should identify the period in which it arose, the tax adjustments used to calculate it and the filed result. An amount without period-by-period support should not be included in the profitable-year tax forecast.

Tax Loss relief must also be assessed separately from the company-law and accounting tests for distributable profits. Reducing Corporate Tax to zero does not, by itself, establish that the company can make a distribution.

How are old losses treated after the Small Business Relief extension?

Under Ministerial Decision No. 131 of 2026, the Small Business Relief (SBR) deadline has been extended to 31 December 2029. An eligible business may elect SBR for a Tax Period ending on or before that date. Revenue must not exceed AED 3,000,000 in the relevant Tax Period or any preceding Tax Period. Once Revenue exceeds the threshold in one period, the business cannot elect SBR in a later Tax Period even if Revenue subsequently falls below it. These conditions are subject to the latest official publication. (Source: Ministerial Decision No. 131 of 2026; FTA Small Business Relief Guide, August 2023.)

A Qualifying Free Zone Person cannot elect SBR. A member of a Multinational Enterprise Group required to file a country-by-country report is also excluded; the consolidated revenue threshold for such a group is AED 3.15 billion. These conditions are subject to the latest official publication. (Source: Ministerial Decision No. 131 of 2026; FTA Small Business Relief Guide, August 2023.)

No Taxable Income is calculated for a Tax Period in which SBR is elected. That period therefore does not generate a new Tax Loss, and historical Tax Losses cannot be used or transferred during it. Eligible losses that existed before the SBR period do not disappear solely because of the election. They can continue to be carried forward to a later Tax Period in which SBR is not elected and the other conditions are met. This treatment is subject to the latest official publication. (Source: FTA Small Business Relief Guide, August 2023.)

This changes a multi-year forecast. If SBR was elected in any one of the three years, the accounting loss for that year cannot simply be added to the Tax Loss balance, and an existing balance cannot be used during that year. Before making an SBR election, compare the current-period relief with the planned future use of historical losses rather than looking only at the tax payable for that year. The applicable conditions remain subject to the latest publications from the UAE Ministry of Finance and Federal Tax Authority.

Why must AED 375,000 of an AED 600,000 historical loss be used in Year 3?

The example assumes an ordinary Taxable Person and excludes the special treatment for a Qualifying Free Zone Person. All three Tax Periods fall within the UAE Corporate Tax regime. The company did not elect SBR; every loss is eligible and unrelated to Exempt Income; the ownership and business-continuity conditions are met; and there are no other tax adjustments, Tax Credits or special-rate treatments.

In Year 1, the company generates an eligible Tax Loss of AED 400,000. In Year 2, it generates a further AED 200,000. The available balance at the end of Year 2 is AED 600,000. When losses arose in more than one period, the earliest Tax Loss must be used first. The Year 1 balance therefore ranks ahead of the Year 2 balance. This order is subject to the latest official publication. (Source: FTA Corporate Tax Losses Bulletin, 2026.)

Taxable Income before Tax Loss relief in Year 3 is AED 500,000. Tax Loss relief is limited to 75% of Taxable Income before the relief:

AED 500,000 × 75% = AED 375,000

The 75% figure is a current-period ceiling, not an amount the company may choose to use only in part. The available Tax Loss must be used to the maximum extent possible within both the 75% ceiling and the available balance. Because the company has AED 600,000 available—more than the AED 375,000 ceiling—it must use AED 375,000 in Year 3. The full amount is taken first from the AED 400,000 Tax Loss generated in Year 1. These rules are subject to the latest official publication. (Source: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Article 37, December 2022; FTA Corporate Tax Losses Bulletin, 2026.)

Taxable Income after relief is:

AED 500,000 − AED 375,000 = AED 125,000

Without the historical Tax Loss, an ordinary Taxable Person applies the 0% rate to Taxable Income up to AED 375,000 and the 9% rate to the amount above that threshold:

(AED 500,000 − AED 375,000) × 9% = AED 11,250

After relief, Taxable Income of AED 125,000 falls below the AED 375,000 threshold, so Corporate Tax is AED 0. The Year 1 balance retains AED 25,000, while the unused Year 2 balance remains AED 200,000. A total of AED 225,000 continues to be carried forward, subject to the conditions being met. The remaining AED 25,000 from Year 1 must still be used before the Year 2 balance. These rates and rules are subject to the latest official publication. (Source: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Articles 3 and 37, December 2022; Cabinet Decision No. 116 of 2022 on the Annual Taxable Income Subject to Corporate Tax, December 2022; FTA Corporate Tax Losses Bulletin, 2026.)

The result depends on a point that is easy to miss: AED 500,000 is Taxable Income after tax adjustments and before Tax Loss relief, not unadjusted accounting profit. A change in non-deductible expenditure, Exempt Income or another tax adjustment changes both the 75% ceiling and the final tax calculation.

Can an ownership or business change prevent old losses from being used?

From the Tax Period in which a loss arises through the end of the Tax Period in which it is used, the same owners must generally maintain at least a 50% ownership interest. If ownership changes by more than 50%, the Tax Loss may remain available where the company continues the same or a similar business. These conditions are subject to the latest official publication. (Source: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Article 39, December 2022; FTA Corporate Tax Losses Bulletin, 2026.)

A share sale, dilution through a capital increase, restructuring or change in the principal business should prompt an immediate update to the ownership and business timelines. The company should retain evidence supporting the continuation of the same or a similar business. Waiting until the profitable-year return is due can leave gaps between the period in which the loss arose and the period in which it is used.

A business preparing to cease operations, liquidate, restructure or deregister for Corporate Tax should not assume that a remaining Tax Loss will stay available or pass to a shareholder, related company or newly established entity. Before taking the exit step, review whether the balance may be forfeited, the last period in which it can be used, any outstanding filing actions and the supporting records that must be retained. This treatment is subject to the latest official publication. (Source: FTA Corporate Tax Losses Bulletin, 2026.)

What should be reconciled before filing the profitable year?

Arrange the Tax Losses by the Tax Period in which they arose. For each period, record the accounting result, tax adjustments, any SBR election, the amount already used and the closing balance. Then confirm when the business became a Taxable Person and review Exempt Income, ownership changes, business continuity and Corporate Tax registration status before calculating the current-period 75% ceiling and the amount that must be used.

Where historical returns are incomplete, the filed figures do not agree with the accounting workpapers, or a restructuring took place, the affected amount should not be included in the tax forecast until the discrepancy is resolved. A large accounting loss is not a usable tax asset unless each period can be supported by its return and underlying records.

→ See also: Schedule a 30-minute complimentary assessment. Bring the Corporate Tax Returns, financial statements, tax-adjustment workpapers and ownership-change records for each relevant period. These documents establish which balances have a basis for carryforward, how much must be used in the current period, and what should be addressed before a restructuring or deregistration.

Last updated: October 2026. This content is for informational purposes only and does not constitute legal or tax advice. For professional consultation, please contact the MIRISE team.