Corporate tax rules to help ease companies’ transition
The UAE'S Ministry of Finance (MOF) on Friday announced a new decision specifying corporate tax rules to help ease companies' transition period once the law comes into effect on June 1, 2023.
In an advisory, the authority said these 'transitional rules' introduce "adjustments for the opening balance sheet" under the corporate tax law. It also provides "important clarifications" that will allow for businesses' smooth transition before and after the law's implementation.
Under the new decision on transitional rules for corporate tax, firms can "adjust their tax treatment of assets and liabilities based on specific rules and must decide how to do that when they submit their first tax return".
The choice, however, would be permanent except in special circumstances, the ministry said.
Among the assets and liabilities where these new rules apply are immovable property, intangible assets, financial assets, and financial liabilities.
The decision grants further flexibility to the real estate sector, the MOF said. "Companies with immovable property recorded on a historical cost basis, before the corporate tax comes into effect, can select the basis of the relief, using either
a time apportionment method or valuation method," it explained.
Younis Haji Al Khouri, Undersecretary at 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 postimplementation 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."
The decision applies to certain assets and liabilities held by businesses before the corporate tax law comes into effect. It also considers the ownership history of assets and liabilities, including those owned by the company or other members of the same business group.
When a local business sells their shares after the law comes into effect, it 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. This transitional rule ensures only gains of that business on such shares that are attributed to periods after the corporate tax law is effective are taxed.
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 postimplementation period.” Younis Haji Al Khouri Undersecretary at the Ministry of Finance