Issue
Corporate Tax in the UAE is regulated by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business and its amendments ("Corporate Tax Law"), and its implementing decisions.
For the purposes of Article 61(1) of the Corporate Tax Law, a Taxable Person's opening balance sheet shall be the closing balance sheet prepared for financial reporting purposes (under International Financial Reporting Standards, "IFRS", or International Financial Reporting Standards for Small and Medium Enterprises, "IFRS for SMEs", as applicable) on the last day of the Financial Year that ends immediately before their first Tax Period commences.
The transitional rules prescribe adjustments that may be made to Taxable Income in relation to gains and losses which are recognised after the start of the first Tax Period, for certain categories of assets and liabilities owned prior to the first Tax Period, as specified in Ministerial Decision No. 120 of 2023 on the Adjustments Under the Transitional Rules for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations ( "Ministerial Decision No. 120 of 2023") , to exclude the portion of the gain or loss attributable to the pre-Corporate Tax ownership period of the relevant asset or liability.
Article 2 of Ministerial Decision No. 120 of 2023 provides that a Taxable Person may elect when submitting its first Tax Return to adjust its Taxable Income in respect of any gains arising on disposal (or deemed disposal) of a Qualifying Immovable Property in the first Tax Period or subsequent Tax Periods to exclude the portion of the gain (and not a loss) attributable to the pre-Corporate Tax ownership period.,, The election is irrevocable except under exceptional circumstances and pursuant to the approval by the Federal Tax Authority ("FTA").
There are two methods for calculating the excluded gain: the valuation method and the time apportionment method. This Public Clarification covers the valuation method only.