The Finance World Magazine| Edition: March 2023

a gain or allowed a loss on a realisation
basis only for the assets and liabilities
subject to fair value or impairment
accounting or held on capital account.
This applies to all assets and liabilities
of the respective category.
Assets and liabilities subject to
fair value generally include financial
assets, financial liabilities, investment
property, biological assets measured
at fair value less cost to sell, and
intangible assets acquired in a
business combination. Assets subject
to impairment accounting include
property, plant, and equipment (PPE),
goodwill, intangible assets not acquired
in a business combination, investments
in equity instruments that are not held
for trading, and others.
and all unrealised gains would not
be taxable (and conversely, any and
all unrealised losses would not be
deductible) until they are realised;
2. The taxpayer can elect to recognise
gains and losses on a ‘realisation
basis’ for UAE CT purposes for
assets and liabilities held on capital
account only - that is, only unrealised
gains and losses in respect of assets
and liabilities held on capital account
would not be taxable or deductible,
respectively, until they are realised.
Unrealised gains and losses arising
from assets and liabilities held on
revenue account, on the other hand,
would continue to be included in
taxable income on a current basis.
loss) of the business, after making
adjustments for certain items specified
in the Corporate Tax Law.
The accounting net profit (or loss)
of a business is the amount reported
in its financial statements prepared
in accordance with internationally
acceptable accounting standards.
Adjustments to the accounting net
profit (or loss) will need to be made
for the following items:
1. Unrealised gains and losses (subject
to the election made regarding
the application of the realisation
principle);
2. Exempt income such as qualifying
dividends and capital gains;
3. Income arising on intra-group
transfers;
Required Adjustments to the
Financial Statements:
The corporate tax legislation in the
UAE mandates that the accounting
net profit (or loss) must be modified
to account for various items specified
in the law, which include:
1. Unrealised profits or losses
(depending on how the realisation
principle is applied)
2. Income that is exempt, such as
dividends
3. Transfers between companies within
the same group
4. Deductions that are not permitted
for tax purposes
5. Adjustments for transactions with
related parties and connected
individuals
6. Any tax incentives or relief provided
by the government
7. Any other modifications specified
by the Minister.
How CT Treats Unrealised Gains
and Losses:
Generally, assets and liabilities are
considered to be held on capital account
when they are not expected to be sold
or traded with during the regular course
of the business operation. Where a
business prepares their financial
statements on an accruals basis,
it has the following options in
respect of the UAE CT treatment
of unrealised accounting gains
and losses:
1. The taxpayer can elect to recognise
gains and losses on a ‘realisation
basis’ for UAE CT purposes for all
assets and liabilities - that is, any
Taxpayers in the UAE can use the
realization principle to determine
their taxable income under the
country’s CT system.
Realisation Principle:
Similar to other Corporate Tax
systems, the UAE’s CT system permits
taxpayers to use the “realisation
principle” to ascertain their taxable
income. In other words, income will
only be subject to tax, and deductions
may only be taken, when a gain or loss is
realised, such as when the related asset
is sold or terminated. The application
of the realisation principle means
that any gains or losses on assets or
liabilities that are subject to fair value
or impairment accounting will not be
included in the taxable income for
each Tax Period.
Taxable Income for UAE CT:
The taxable income for a Tax Period
will be the accounting net profit (or
4. Deductions which are not allowable
for tax purposes;
5. Transactions with Related Parties
and Connected Persons;
6. Transfers of tax losses within the
group where relevant;
7. Incentives or tax reliefs; and
8. Any other adjustments as specified
by the Minister.
March 2023 www.thefinanceworld.com 85