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UAE Ministerial Decision No. 120 of 2023 on the Adjustments under the Transitional Rules for Corporate Tax
UAE Ministerial Decision No. 120 of 2023 on the Adjustments under the Transitional Rules for Corporate Tax
The Ministry of Finance (MoF) has issued guidelines for adjusting the Taxable Person’s opening balance sheet under Corporate Tax Law through the Ministerial Decision No. 120 of 2023. The transitional rules offer clarifications that businesses need to transit smoothly from the pre-implementation period of the Corporate Tax to the post-implementation period.
The decision applies to certain assets and liabilities such as immovable property, intangible assets, financial assets, and financial liabilities. Some of the key highlights of the decision are as follows:
Gains on the transfer of Immovable Property and Intangible Assets
- A taxable person can adjust their Taxable income for gains arising on the transfer of immovable property and Intangible Assets, acquired prior to the first Tax Period, and measured in the financial statements on the historical cost basis.
- If the asset is disposed of or deemed disposed of during or after the first tax period for a value exceeding the net book value, the Taxable Person can make adjustments.
- Upon disposal, the gains calculated according to specific rules will be excluded from the Taxable Income. The excluded gain is calculated based on a formula that considers the asset’s ownership duration.
- The election to adjust taxable income must be made for each qualifying property and intangible asset in the first tax return, and it is generally irrevocable except under exceptional circumstances and with approval from the authority.
Gains and Losses recognized on Financial Assets and Financial Liabilities
The decision specifies that the gains and losses on Financial Assets and Financial Liabilities owned by the taxable person prior to the first Tax Period and measured in the financial statements on a historical cost basis can be excluded from the Taxable Income.
Upon disposal, the Taxable Person must exclude the gain or loss that would have occurred if they were disposed of at market value at the start of the first tax period, with cost equal to the net book value.
Further, the election to adjust taxable income must be made in the first tax return and applies to all qualifying assets or liabilities, with limited revocability based on exceptional circumstances and approval from the relevant authority.
The ministry further specifies that this decision applies to the ownership of the assets and liabilities held solely by a Taxable Person and by one or more members of the Qualifying Group as well as by the members of the same Tax Group of the Taxable Person.
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