Get Appointment
Get Appointment
UAE CT: Adjustments on Transitional Rules

UAE CT: Adjustments on Transitional Rules

by | Apr 9, 2025 | PREMA Insights

Adjustments on Gains from Immovable Property Owned Before the First Tax Period (Article 2)

Taxable Persons may elect to adjust their taxable income when disposing of immovable property, if the following conditions are met:

  • The property was owned before the first tax period.
  • It is measured at historical cost in the financial statements.
  • It is disposed of for more than the net book value during or after the first tax period.

If eligible, the taxpayer can choose one of the following adjustment methods:

  • Market Value Method:
    Exclude the notional gain that would have been recognized if the property was sold at market value on the first day of the tax period.
  •  Time Apportionment Method:
    Exclude a portion of the actual gain based on how long the property was owned before the first tax period.

Additional Points:

  • The market value must be certified by a competent UAE government authority.
  • The election must be made for each property in the first tax return.
  • Once made, the election is irrevocable, except under exceptional circumstances with FTA approval.

Adjustments on Gains from Intangible Assets Owned Before the First Tax Period (Article 3)

Taxable Persons may elect to adjust their taxable income when disposing of intangible assets, if the following conditions are met:

  • The intangible assets were owned before the first tax period.
  • They are measured on a historical cost basis in the financial statements.
  • They are disposed of for more than the net book value during or after the first tax period.

If eligible, the taxpayer can exclude the gain based on a time-apportioned method:

Step 1: Calculate the notional gain assuming the asset’s cost is the higher of:

  • Its original cost, and
  • The net book value at the start of the first tax period.

Step 2: Apportion the gain based on the ownership period before the first tax period:

  • Divide the days the asset was owned before the first tax period
    by the total days it was owned.

Step 3: Multiply the two amounts to determine the portion of gain to exclude from taxable income.

Additional Points:

  • This election must be made in the first tax return and applies to all qualifying intangible assets.
  • Once made, the election is irrevocable, unless approved otherwise by the FTA under exceptional circumstances.
  • The pre-ownership period used for the calculation is capped at 10 years, unless extended with FTA approval.

Adjustments on Gains or Losses from Financial Assets & Liabilities Owned Before the First Tax Period (Article 4)

Taxable Persons may adjust their taxable income when disposing of certain financial assets or liabilities, if the following conditions are met:

  • The financial assets or liabilities were owned before the first tax period.
  • They are recorded in the financial statements using the historical cost basis.

If eligible, the following adjustment can be applied upon disposal:

  • The Taxable Person can exclude the gain or loss that would have arisen at the start of the first tax period,
    assuming the asset or liability had been disposed of at market value,
    and the cost was equal to its net book value.

Additional Points:

  • This election must be made in the first tax return.
  • It must apply to all qualifying financial assets and liabilities.
  • Once submitted, the election is irrevocable, unless the Authority approves changes under exceptional circumstances.

Ownership of Assets Within a Qualifying Group or Tax Group (Article 5)

This article applies when assets or liabilities are shared between a Taxable Person and members of their Qualifying Group or Tax Group under certain conditions.

Applicable Scenarios:

The Immovable Property, Intangible Assets, Financial Assets, or Liabilities were held by:

  • A member of the same Qualifying Group, in line with Article 26(1) of the Corporate Tax Law.
  • A member of the same Tax Group, in line with Article 42(1) of the Corporate Tax Law.

Key Definitions:

  • Non-Financial Transferred Assets:
    Includes all non-financial assets under this Article (e.g., property or intangible assets).
  • Transferred Assets and Liabilities:
    Covers all assets and liabilities (both financial and non-financial) as described above.
  • Non-Qualifying Transfer:
    A transfer that is not covered (or wouldn’t have been covered) under Article 26(1) or Article 42(1) of the Corporate Tax Law.

Implications on Ownership:

  • For Articles 2, 3, and 4 of this Ministerial Decision:
    • Ownership includes periods when any group member held the asset or liability (Clause 1 above).
  • For calculating ownership duration of Non-Financial Transferred Assets:
    • Include time held by any group member, excluding periods before a Non-Qualifying Transfer.

Source: Ministerial-Decision-No.-120-of-2023-on-the-Adjustments-Under-the-Transitional-Rules.