Transfer of Tax Losses under UAE Corporate Tax

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Under the United Arab Emirates (UAE) Corporate Tax Law, tax losses can get transferred between affiliated companies within the UAE. To be considered affiliated companies,

  • Both taxable persons are juridical and resident.
  • Either the company registered for corporate tax has either seventy-five per cent of direct or indirect ownership or at least seventy-five per cent of each taxable person is owned directly or indirectly by a third party.
  • Both juridical persons are not exempt.
  • Both persons should be qualifying free zone persons.
  • The financial year should be the same for both taxable persons.
  • Both taxable persons must use the same accounting standards to prepare the financial statements.

The transfer of tax losses can get carried out following the provisions of UAE Corporate tax law. The amount of tax loss maximum they can set off is only seventy-five per cent in the current tax period. And, for the remaining twenty-five per cent, the company can carry forward indefinitely.

  • Under the following circumstances, the tax loss relief cannot get claimed.
  • Business or resource that the law exempts the income.
  • Before the first day of UAE, corporate tax begins.
  • Before becoming taxable under the law.

It's important to note that the transfer of tax losses mustn't be made per the commercial substance of the transaction and mustn't be for the sole purpose of obtaining a tax advantage. The Federal Tax Authority may disallow the utilization of transferred tax losses if it determines that the transfer wasn't transferred under the commercial substance of the transaction. In summary, the transfer of tax losses is possible under the UAE Corporate Tax Law.

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