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May 15, 2026

This rule establishes the procedures for an Incorporated Body to carry forward tax losses. A loss can be deducted from the net income of subsequent years for a maximum of three years. The right to carry forward losses is forfeited upon events such as ceasing activity, liquidation, merger, or a change in the legal form of the body. The rule distinguishes between different types of activity cessation, noting that force majeure events also prevent loss carry-forward. It provides guidance on pre-existing losses under older decrees and includes illustrative examples.

Executive Rule No. 46 Concerning the method of calculating the losses carried forward

Article No. 7 of the Executive Regulations:

Losses shall be carried forward as follows:

First: If the account of one year ends with a loss, this loss is deducted from the net income of the following year. Accordingly, if the profit does not cover the loss entirely, the remaining loss is carried forward to the second year. In case any loss remains after this, it is carried forward to the third year. No remaining loss shall be carried forward after the third year.

Second: The loss shall not be carried forward in the case of ceasing the activity. This is represented by the Incorporated Body notifying the Ministry of Finance of this cease in activity or submission of a tax declaration free of any revenues resulting from its main activities.

Third: The maintenance period stipulated in the contract or agreed upon in a subsequent agreement shall not be considered as a cease of activity.

Fourth: Compulsory cease of activity periods shall not be accounted for as a cease of activity.

Fifth: The rights of any Incorporated Body to carry forward losses deducted during the tax period(s) pertaining to practicing activity during which such losses are incurred shall be forfeited in the following cases:

Liquidation of the Incorporated Body
Changing the legal form of the Incorporated Body or its closing
Merging the Incorporated Body with another Incorporated Body.

Sixth: Losses will not be carried forward, as stipulated in Item 1, in the case of compulsory cease of activity such as force majeure or emergency circumstances.

Seventh: Approved and carried forward losses under the income tax Decree No (3) of 1955 shall be carried forward for 3 years, effective from the first financial year after the implementation of the income tax Decree No (3) of 1955 and its amendments, amended by law No (2) of 2008.

Eighth: Special and exceptional cases relating to the method of calculating carried forward losses shall be treated separately after consulting the Tax Department in this regard.

Example:

First case: Carried forward losses exceed realized profits:

The loss of a Incorporated Body amounted to (KD 500,000) as per the tax assessment letter and the result of the tax assessment for the following three financial years was as follows:

Year	Net profit
First	200,000
Second	100,000
Third	100,000