Picture used for illustrative purpose only.
The Ministry of Finance (MoF) has issued Ministerial Decision No. 120 of 2023 on Transitional Rules for Corporate Tax, providing guidelines for adjusting a Taxable Person’s opening balance sheet under the Corporate Tax Law.
Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said, “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 the post-implementation period.
The aim is to ease the process of determining the opening balance sheet, ensuring a fair and transparent approach for assets and liabilities held prior to the implementation of the new Corporate Tax regime.”
The decision applies to certain assets and liabilities, such as immovable property, intangible assets, financial assets, and financial 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 specific rules and must decide how to do that when they submit their first Tax Return. Their choice would be permanent except in special circumstances. 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.
There is further flexibility for the real estate sector where companies with immovable property recorded on a historical cost basis have an option to select the basis of the relief, using either a time apportionment method or valuation method, thereby allowing groups to determine the most favourable outcome for them on immovable property on an asset-by-asset basis.
For example, consider a UAE company that owns a real property asset, such as 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; 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 the relevant government entities in charge of valuation of land and real-estate property in the UAE) 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.
Another possible scenario for financial assets and liabilities would be 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. 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.
Meanwhile, Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs, met with Magdalena Rzeczkowska, Minister of Finance of the Republic of Poland, and her accompanying delegation at the Ministry’s headquarters in Abu Dhabi.
The meeting sought to discuss current economic developments and future prospects, as well as ways of enhancing financial and economic cooperation between the UAE and Poland.
Al Hussaini emphasised the significance of this meeting, which serves as a vital opportunity to further strengthen bilateral relations between the UAE and the Republic of Poland in the fields of economy, finance and investment, among others.
He said, “The UAE is keen to consolidate economic and financial ties and partnerships with the Republic of Poland and expand areas of cooperation to include key areas of common interest. Our cooperation will contribute to advancing our economies and consolidating our bilateral relations.”
The meeting included the signing ceremony of the UAE-Poland joint statement, which aims to consolidate cooperation between both countries and exchange knowledge, experiences and best practices in the field of tax policy.
These practices include digital reporting requirements, big data analysis, machine learning, means of supporting research and innovation, and in addition to deploying new technologies in the public sector such as artificial intelligence (AI).
The UAE is one of Poland’s largest trading partners in the region, as the volume of non-oil intra-trade between both countries amounted to about AED3 billion during the first half of 2022, achieving a growth of 22%, compared to the same period in 2021.
Additionally, the volume of non-oil intra-trade between the two countries amounted to about Dhs5.3 billion during 2021, achieving a growth of 12% compared to 2020.
From the UAE Ministry of Finance, the meeting was attended by Younis Haji Al Khoori, Undersecretary of Ministry of Finance; Hamad Al Zaabi, Director of the Office of the Minister of State for Financial Affairs; Thuraya Al Hashemi, Director of the International Tax Department at the Ministry of Finance; and Joanna Declercq Zelechowska, Advisor at the Ministry of Finance.