UAE Corporate Tax permits tax loss transfers between companies under at least 75% common ownership under Article 38 of Federal Decree-Law No. 47 of 2022. However, Article 39 restricts carry-forward of losses when a substantial ownership change is combined with a substantial business change. These rules are critical for UAE business groups in Dubai, Sharjah, and Abu Dhabi managing multi-entity structures. Abdelhamid & Co. (FTA TAAN 20033908, MOE LC0106-01) advises UAE groups on tax loss planning and restructuring.
Tax Loss Transfer Between UAE Companies — Article 38 Conditions
| Condition | Requirement |
|---|---|
| Residency | Both companies must be UAE Resident Persons |
| Tax rate | Both must be subject to the standard 9% rate |
| Common ownership | At least 75% direct/indirect common ownership throughout the Tax Period |
| Financial Year end | Both must share the same Financial Year end |
| Accounting Standards | Both must use the same Accounting Standards |
| Loss owner's own income first | The transferring company must first offset its loss against its own income |
Worked Example — Tax Loss Transfer (Companies O, P, Q)
Three UAE companies — O (pharmaceuticals), P (IT software), Q (clothing) — connected through common ownership. Company O incurs a Tax Loss of AED 40 million in 2024:
| Company | 2024 Taxable Income AED | Loss Transfer AED | After Transfer AED | CT Payable AED |
|---|---|---|---|---|
| O (loss maker) | (40,000,000) | Transfers AED 11.25M | (28,750,000) carried forward | 0 |
| P (profitable) | 10,000,000 | Receives 7,500,000 (75%) | 2,500,000 | 194,625 |
| Q (profitable) | 5,000,000 | Receives 3,750,000 (75%) | 1,250,000 | 78,750 |
Without the transfer, P would pay AED 875,250 and Q would pay AED 416,250. The transfer saves the group AED 1,017,125 in 2024 Corporate Tax. Company O carries forward AED 28.75 million indefinitely.
Carry-Forward Restriction on Ownership Change — Article 39
Article 39 introduces a critical restriction: if a company undergoes a substantial change in ownership combined with a substantial change in Business, it loses the ability to use pre-change Tax Losses against post-change income.
In the example: in 2026, Company O's ownership changes 80% (to Mr C and Ms D) who then change the business from manufacturing pharmaceuticals to clinical trials — a different industry, different assets, different employees. Result:
- Substantial ownership change (80% transferred) + Substantial business change = Article 39 triggers
- Company O's carried-forward losses cannot be used against post-change taxable income
- Both conditions must be present simultaneously for the restriction to apply
Strategic Implications for Dubai and Sharjah Business Groups
- Pre-acquisition due diligence: Check the target's Tax Loss history — a post-acquisition business change may trigger Art. 39 restrictions
- Business continuity: Maintain existing activities when restructuring a loss-making entity to preserve loss carry-forwards
- Timing of loss transfers: Transfer losses to profitable group members in the same year they arise
- Tax Group consideration: Forming a UAE Tax Group under Art. 40 may be more efficient for complex multi-entity groups
Interaction with the 75% Annual Cap
Even where loss transfers are permitted, the receiving company can offset at most 75% of its own Taxable Income with transferred losses in any Tax Period. The remaining 25% remains taxable — ensuring profitable UAE businesses continue to pay some Corporate Tax even when absorbing group losses.
Frequently Asked Questions — UAE Corporate Tax Loss Transfer
What is the minimum ownership to transfer Tax Losses between UAE companies?
At least 75% common ownership (direct or indirect) throughout the relevant Tax Period under Article 38 of the Corporate Tax Law.
Can a UAE Free Zone company transfer its Tax Losses to a mainland Dubai company?
Generally no — both companies must be subject to the standard 9% rate. Free Zone Qualified Persons taxed at 0% do not meet this condition.
What happens to UAE Tax Losses when a company's ownership changes substantially?
Under Article 39, pre-change Tax Losses are forfeited if both a substantial ownership change (over 50%) AND a substantial business change occur together. Both conditions must be present.
Can UAE Tax Losses be transferred between companies with different Financial Year ends?
No. Both companies must have the same Financial Year end for a loss transfer to be permitted under Article 38.
Is it better to form a UAE Tax Group or use standalone loss transfers for a Dubai group?
Both are valid. A Tax Group consolidates results and may be simpler for large multi-entity groups. Standalone loss transfers work well for simpler structures without formal Tax Group registration. An FTA Tax Agent can advise on the optimal approach.
Related Services
Our firm provides Corporate Tax services, CT Compliance Review, Business Valuation, and restructuring advisory. Visit our Insights page or the Federal Tax Authority.
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