Although several cabinet and ministerial decisions were recently issued on the UAE’s Corporate Tax implementation that is taking effect from 01st June 2023, and there will be more expected, the latest Ministerial Decision issued is of particular importance that it addresses a Transitional Rule under chapter 19 of the Law.
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 and Businesses is addressing the tangible (immovable), intangible assets as well as financial assets taxation that will be considered part of the Taxpayer’s opening financial position or balance sheet before the Corporate Tax (CT) adoption by the Taxpayer. The decision is putting the rules forward for making election available to the Taxpayer to exempt certain gains from these pre-implementation assets that meet the definition of being qualifying properties and assets by way of apportionment method for the taxable income calculations on the gains that occur on these assets.
The decision outlines the conditions to meet the requirements for qualifying assets and the methodology for calculating and apportioning applicable gain or loss that can be elected for exclusion of exemption by the Taxpayer. These transitional assets and liabilities would need to be identified, quantified, valued and supported. A comprehensive analysis and assessment would need to be conducted for all assets of the business in order to ensure it is not being understated, where in particular intangible and financial assets might require some special attention and evaluation.
The transitional rules and this latest Ministerial Decision indicate the importance of adequate planning and readiness conducted by the Taxpayer prior to the implementation of the CT on their financial year by ensuring their closing balance sheet/opening financial tax position is well positioned, supported where historical costs are clearly identified and valued to maximises its tax saving and preclude the risk of losing any available relief that might be available to the Taxpayer at the transitional stage of the initial implementation.
This latest ministerial decision on the corporate tax is another indicator of the UAE’s Ministry of Finance and government in general on granting all available reliefs that might be possible on the transition to the CT for local business. Taxpayers must take advantage of these one-time inception reliefs that will not be available once the position is determined and CT is implemented. Taxpayers must ensure the adoption of best-positioned tax policies and implementation through sufficient appropriate tax planning to identify any tax gaps to ensure compliance and optimization of the tax liabilities.
At XB4, we help our clients in the UAE with the implementation of CT through gap analysis and assessment. Our qualified team has extensive in-depth knowledge, experience and qualifications working with multi-national entities across the globe in line with international tax practices and the OECD rules and standards.