For the derivation of Taxable Income under UAE Corporate Tax Law businesses must follow rules defined under Article 20(2) of the CT law. The starting point for Taxable Income computation shall be the accounting income, i.e. the Net Profit or Loss based on Financial Statement prepared in accordance with IFRS. Specific adjustments defined under Article 20 (2) are made to the accounting income to derive Taxable income.

First adjustment is related to Unrealised Gain/Loss. In this article, we will see how unrealised gains and losses are treated and how they impact the computation of Taxable income.

Taxable Persons are required to include any realised and unrealised gains and losses reported in the Financial Statements unless an election to use realisation method is made, in that case only the realised gains and losses are considered in the determination of Taxable Income.

Thus unrealised gains/loss shall be excluded and adjustment would be required to make accordingly to accounting Income.

Election to use realisation basis :

Businesses that prepare Financial Statements using the Accrual Basis of Accounting may elect to take into account gains and losses on a realisation basis either:

for all assets or liabilities that are subject to fair value or impairment accounting under applicable accounting standard or;

Only for assets held on capital account.

This election must be made during the first Tax Period.

Irrevocability:

The election is irrevocable, except, Exceptional circumstances may allow for changes, but that would require approval from the Federal Tax Authority (FTA).

Failing to make the election in the first tax period results in an irrevocable decision against using the realisation basis.