The United Arab Emirates Ministry of Finance has released Ministerial Decision No. 120 of 2023 on Transitional Rules for Corporate Tax, stating guidelines for adjusting an opening balance sheet under the Corporate Tax Law which would take effect on June.
In a statement released on Friday, Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said: “Transitional rules for Corporate Tax provide important clarifications for businesses that need to transition smoothly from the pre-implementation period of the Corporate Tax Law to the post-implementation period.”
“The aim is to ease the process of determining the opening balance sheet, ensuring a fair and transparent approach for assets and liabilities held prior to the implementation of the new Corporate Tax regime,” Al Khouri added.
Businesses can adjust their tax treatment of their assets and liabilities based on specific rules and must decide how to do that when they submit their first Tax Return.
According to a report from state media WAM, an example would be a UAE company that owns a real property asset, such as a building or land, before the effective date of the Corporate Tax Law.
Upon selling the property after the enactment of the law, the company can choose one of two methods for adjusting their Taxable Income: excluding a portion of the gain based on the property’s holding period, or using a fixed formula based on the property’s value at the beginning of the first Tax Period.
Meanwhile, a local business that holds shares in another company and wishes to sell these shares after the law comes into effect, can adjust its Taxable Income by excluding a portion of the gain based on the shares’ value at the start of the first Tax Period.
