Background
Article 61 of the UAE CT Law contains provisions regarding ‘Transitional Rules’ for preparation of opening balance sheet for Corporate Tax purposes for the first Tax Period. It provides that a Taxable Person’s opening balance sheet shall be the closing balance sheet prepared on the last day of the Financial Year that ends immediately before their first Tax Period commences.
This newsletter describes Ministerial Decision No. 120 of 2023 amplifying provisions relating to Transitional Rules.
Note: The election made to make the above adjustments shall be deemed irrevocable except under exceptional circumstances and pursuant to approval by the Authority.
Provisions relating to Adjustments
Type of Asset/Liability
- Qualifying Immovable
Property - Qualifying Intangible
Asset - Qualifying Financial
Asset / Liability
Conditions
Owned prior to the first Tax Period
• Measured in FS on historical cost basis
• Disposed of or deemed to be disposed
of during or after the first Tax Period for
a value exceeding net book value
• Owned prior to the first Tax Period
• Measured in FS on historical cost basis
Election*
Shall be made for each
Qualifying Immovable Property
Shall be made for all Qualifying
Intangible Asset
Shall be made for all Qualifying
Financial Asset / Liability
*The election shall be made upon submission of the first Tax Return in the form and manner prescribed
*The election shall be made upon submission of the first Tax Return in the form and manner prescribed
Method 1:
Method 2:
In case of Qualifying Group or Tax Group
Conditions for
Immovable Property,
Intangible Assets and
Financial Assets /
Liabilities
Ownership
Shall include ownership
by Taxable Person and by
a member within the
same Tax Group or
Qualifying Group
Period of holding (excluding for Financial Assets / Liabilities)
• Include ownership period of Taxable Person as well
as member of Tax Group or Qualifying Group; and
• Exclude ownership period before the most recent
Non-Qualifying Transfer (i.e. where prescribed
conditions are not fulfilled).
Summary
This decision is a very welcoming one which clarifies various important aspects around Transitional Provisions.
These provisions in a nutshell ensure grandfathering of gains which arise before the start of Tax period (i.e. no tax would be payable for gains arising before the law comes into effect for a Taxable Person). As a corollary, even losses may be elected to be adjusted for Financial Assets/ Liabilities.
Given the various methods prescribed, it would be prudent from a tax planning perspective to evaluate the best way forward while furnishing the first Tax return.
To summarise, it is necessary to evaluate all required parameters to determine if a PE is triggered in the UAE for a Non-Resident Person. AJMS supports in evaluating these parameters from taxability perspective.
For more information contact us at info@ajmstax.com / +971 58 120 6294.