Pre-Group vs Post-Group Losses in UAE Tax Groups Explained

Calculated losses and loss offsets are handled based on when in the formation process they arise.

1. Post-group losses: Losses incurred after the group is formed
   • Treated as group losses
   • Can be used to offset profits of any member, and
   • Reduce the group’s overall taxable income
   • This means that one company’s bad year can reduce the tax bill for the entire group, making it one of the main advantages of forming a tax group.
   • Example:
     Company A profit: AED 600,000
     Company B loss: AED 200,000
     Group Taxable Income = AED 400,000 (before thresholds)
2. Pre-grouping losses: Losses incurred before joining the group
   • These losses remain with the original entity and cannot be shared with other members (i.e. losses are ring-fenced)
   • This can only offset the company’s own future profits. This prevents businesses from acquiring loss-making entities purely for tax benefits
3. Loss utilization limits still apply
   • Taxable losses can be used to offset up to 75% of income subject to tax during a tax period.
   • Even within a tax group, losses can only offset taxable income up to the allowed limit in a given tax period
   • This ensures that some taxable base remains in place
   • Loss is a tool and may help, but it should not be treated as eliminated indefinitely like a permanent tax shield
   • Example:
     • Company A Profit: AED 900,000
     • Company B Loss: AED 400,000
     • Group taxable income before limits.= AED 500,000
     • Applying the loss utilization limit: 75% x 500,000 = AED375,000
     • Taxable income after loss relief: 500,000 – 375,000 = AED 125,000

We outline in this guide how tax loss carry forward works in the UAE and how you can use it to offset against future taxable income.