A UAE resident company carries forward AED 900,000 of Tax Losses from a prior tax period, having satisfied all general Tax Loss relief conditions, with no change of more than 50% in its ownership since those losses arose. In the current tax period, before offsetting any brought-forward Tax Losses, its taxable income is AED 1,000,000. Under Article 37 of Federal Decree-Law No. 47 of 2022, what is the maximum amount of the brought-forward Tax Losses the company can offset against its current tax period's taxable income?
- AED 900,000, because Article 37 allows the full brought-forward Tax Loss balance to be offset against taxable income in the immediately following tax period with no percentage cap
- AED 750,000, because Article 37 caps the offset at 75% of the tax period's taxable income before the offset, i.e. 75% of AED 1,000,000, with the remaining AED 150,000 of Tax Losses available to carry forward to future tax periods
- AED 500,000, because Article 37 caps Tax Loss relief at 50% of the tax period's taxable income before the offset
- AED 0, because carried-forward Tax Losses expire and become permanently unusable after a single tax period if not fully utilized
Why B? And why not the others?
Correct answer: B. AED 750,000, because Article 37 caps the offset at 75% of the tax period's taxable income before the offset, i.e. 75% of AED 1,000,000, with the remaining AED 150,000 of Tax Losses available to carry forward to future tax periods
Article 37 of Federal Decree-Law No. 47 of 2022 allows a Tax Loss to be carried forward and offset against taxable income of future tax periods, but caps the amount that can be offset in any one tax period at 75% of that period's taxable income calculated before applying the Tax Loss relief; here, 75% of AED 1,000,000 is AED 750,000, leaving AED 150,000 of the AED 900,000 balance still available to carry forward, and provided the ownership and business-continuity conditions elsewhere in the loss-relief rules remain satisfied, Tax Losses generally do not expire simply through the passage of time. The option allowing the full AED 900,000 with no cap is wrong because Article 37 imposes exactly this 75%-of-taxable-income ceiling in each period rather than allowing unlimited use up to the full loss balance. The option applying a 50% cap is wrong because it confuses the actual 75% statutory threshold with an unrelated more-than-50%-change-of-ownership test used elsewhere in the loss-relief rules, rather than the percentage cap on the amount offsettable in a period. The option treating unused Tax Losses as expiring after one period is wrong because, provided the ownership and business-continuity conditions continue to be met, Article 37 permits Tax Losses to be carried forward indefinitely rather than lapsing after a single tax period.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 37 (Tax Loss relief -- 75% offset cap and carry-forward)