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Treatment of Unrealised Gains and Losses Under UAE Corporate Tax

Section 5.2 of the Corporate Tax Public Consultation Document describes how the unrealised gains and losses will be treated under the proposed UAE corporate tax regime. Business owners will be eager to know whether an unrealised gain or loss should be taken into account while calculating the taxable income. Corporate tax advisors in Dubai can advise businesses about the treatment of unrealised gains or losses under the proposed tax regime.

However, businesses need to not hurry to make any tax-related decisions at this point as the UAE Corporate Tax Law is yet to be finalised. Corporate Tax consultants in Dubai expect the law to be issued before June 1st 2023, which is the proposed date on which the corporate tax may come into force. However, at this juncture, businesses can use the consultation document to stay prepared before the finalisation of the law.

The following article will help you to have some basic idea of how the new corporate tax regime will treat unrealised gains or losses.

What is an Unrealised Gain or Loss?

An unrealised gain or loss happens when there is a change in the value of an asset or liability held by a business but no transaction takes place to generate a gain or loss. The gain would be unrealised when the value of a business property increases but the property is unsold. An unrealised loss results from holding an asset that has decreased in price, but not yet selling it and realizing the loss.

Recording of Unrealised Gains or Losses

Unrealised gains or losses can be recorded for accounting purposes even if they are not yet realised. However, the question here is what should be the tax treatment of such unrealised gains or losses. Corporate tax advisors in Dubai can offer more advice on this matter.

What is the Tax Treatment of Unrealised Gain or Loss?

The proposed UAE Corporate Tax regime will set out specific rules to determine whether an unrealised gain or loss should be taken into account while calculating taxable income. However, these relate to whether the gain or loss is related to capital items or revenue items. Consult with corporate tax consultants in Dubai for further details.

Tax Treatment of Unrealised Capital Gain or Loss

Capital items are defined as those items having a long-term impact on a business. Capital items may include assets such as machinery, and long-term liabilities such as loans to buy property. As per the regime of corporate tax in the UAE, unrealised gains or losses on capital items will not be taken into account while calculating taxable income. Corporate tax advisors in Dubai can guide you further on the tax treatment of unrealised capital gains or losses.

Tax Treatment of Unrealised Revenue Gains or Losses

Revenue items are those with a short-term impact on a business. Revenue assets are non-capital items that may include the goods a business sells. As per the UAE corporate tax regime, businesses are required to take into account the unrealised gains or losses on revenue items while computing the taxable income. Corporate tax advisors in Dubai can assist businesses to account for unrealised gains or losses on revenue items.

Basis of Calculating Taxable Income

For calculating the taxable income under the UAE corporate tax, businesses are required to use the accounting net profit (or loss) as stated in their financial statements. The companies should prepare the financial statements using accounting standards and principles accepted in the UAE. Moreover, the businesses must use their financial accounting period as their annual tax period. If the business doesn’t have a financial accounting period, then its default tax period will be the Gregorian calendar year.

The International Financial Reporting Standards (IFRS) are commonly used in the UAE for making financial statements. However, certain taxpayers such as startups and SMEs will be allowed to use alternative financial reporting standards and mechanisms to determine their taxable income. It will help such companies accommodate and reduce compliance costs. Consult with corporate tax consultants in Dubai to understand the process of calculating the taxable income under the corporate tax.

Update your Chart of Accounts

Update your chart of accounts to account for unrealized gains and losses on capital and revenue items separately so that the companies will not have to go through again the full year’s books of accounts at the time of filing the Corporate Tax Return.

Hire the Best Corporate Tax Advisors in Dubai, UAE

Corporate tax advisors in Dubai such as Jitendra Chartered Accountants (JCA) can offer valuable insights into different aspects of the proposed corporate tax. JCA’s corporate tax consultants in Dubai can provide business owners with bespoke solutions on various tax concerns such as tax treatment of unrealised gains or losses, tax grouping, calculation of taxable income, transfer pricing, and tax impact in free zones etc.

Our services at JCA as Corporate Tax Consultants include CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. JCA offers customised tax solutions to allow businesses to comply with the UAE corporate tax hassle-free.

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