STOCK Corporate tax / Tax
The latest Ministry of Finance guidelines apply to certain assets held by the taxable person. These need to reflect in the opening balance-sheet ahead of the corporate tax regime coming into effect. Image Credit: Shutterstock

Dubai: The UAE Ministry of Finance has issued a set of 'transitional rules' that businesses need to factor in for their corporate tax preparations. These guidelines give a framework on a taxable person's opening balance-sheet under the Corporate Tax Law. The UAE begins its corporate tax regime June 1.

Certain assets and liabilities are covered under the rules - including immovable property, intangible assets, financial assets and liabilities - held by businesses before the Corporate Tax Law comes into effect.

Businesses can adjust their tax treatment of such assets and liabilities based on these specific rules. And decide how to do that when they submit their first tax return.

"Their choice would be permanent except in special circumstances," the MoF said in a statement. The decision also considers the ownership history of assets and liabilities, including those owned by the company or other members of the same business group.

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"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 post-implementation," said Younis Haji Al Khouri, Under-Secretary of the Ministry of Finance.

Accounting for real estate assets

Companies with immovable property recorded on a historical 'cost basis' have an option to select the basis of relief, using either a 'time apportionment method' or 'valuation method'

This allows business groups to determine the most favourable outcome on immovable property on an asset-by-asset basis.

Consider a UAE company that owns 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," said the MoF.

"They can either exclude a portion of the gain based on the property's holding period, or they can use a fixed formula based on the property's value (as determined by relevant government entities in charge of valuation of land and real estate) at the start of the first tax period.

"This ensures a fair tax calculation that considers the property's ownership or value history and only taxes that business' gains on such immovable property that are attributed to periods after the corporate tax law is effective," said the MoF.

A business holding shares in another
Here's how the transitional rules would apply for a local business that holds shares in another company recorded on a historical cost basis before the enactment of the Corporate Tax Law.
"When this local business sells these 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," says the Ministry of Finance.
"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."