10 Jul 2023
In a move to simplify tax calculations for corporations and businesses, the Ministry of Finance has issued Ministerial Decision No. 120 of 2023. This decision introduces adjustments under the transitional rules for the purposes of Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses. These adjustments specifically focus on taxable income related to gains recognized on immovable property, intangible assets, and financial assets and liabilities owned prior to the taxable person's first tax period.
- Adjustments for Gains on Immovable Property
Under Article (2) of the decision, a taxable person can adjust their income for gains on immovable property that meets specific conditions. These conditions include owning the property prior to the first tax period, measuring it on a historical cost basis in the financial statements, and disposing of it for a value exceeding the net book value. Upon disposal, the taxable person can exclude the gain by either considering the gains that would have arisen at the start of tax period if the Qualifying Immoveable Property was disposed at its market value and the cost was the higher of the original cost and the net book value or by following a calculation method outlined in the decision.
- Adjustments for Gains on Intangible Assets
Article (3) of the decision allows taxable persons to adjust their taxable income for gains on intangible assets meeting certain conditions. Like immovable property, the assets must be owned before the first tax period and measured on a historical cost basis in the financial statements. The taxable person can exclude the gain recognized on the qualifying intangible asset upon disposal using a calculation method specified in the decision.
- Adjustments for Gains and Losses on Financial Assets and Liabilities
Under Article (4) of the decision, taxable persons can adjust their taxable income for gains and losses on financial assets and liabilities owned prior to the first tax period. The financial statements must measure the assets or liabilities on a historical cost basis. Upon disposal, the taxable person can exclude the gain or loss that would have arisen if the assets or liabilities were disposed of at market value and the cost was equal to the net book value.
- Ownership by Members of a Qualifying Group or Tax Group
Article (5) of the decision addresses the ownership of immovable property, intangible assets, financial assets, and financial liabilities by members of a qualifying group or a tax group. It specifies that the ownership by such members should be considered when applying the adjustments outlined in Articles (2), (3), and (4) of the decision.
The decision provides clear guidelines for taxable persons to adjust their income based on the mentioned assets and liabilities owned before the first tax period. These adjustments aim to ensure a fair and accurate representation of gains and losses, taking into account market value and historical cost. It is important to note that the election to make these adjustments should be made upon the submission of the first tax return and is generally irrevocable except under exceptional circumstances and with approval from the authority.
By introducing these adjustments, Ministerial Decision No. 120 of 2023 streamlines the taxation process for corporations and businesses, providing clarity and coherence to the transitional rules under Federal Decree-Law No. 47 of 2022. The decision promotes fairness, accuracy, and compliance while facilitating a smoother transition to the new tax regime.
