Adjustments under the Transitional Provisions for the purposes of Federal Decree-Law No. (47)
of 2022 on the Taxation of Corporations and Businesses
Ministerial Decision No. (120) of 2023
Date of Issuance 16 May 2023 - (Effective from the day following the date of its publication in the Official Gazette)
The Minister of State for Financial Affairs has decided,
Having reviewed the Constitution,
And Federal Law No. (1) of 1972 regarding the Competencies of Ministries and Powers of Ministers, and its amendments,
And Federal Decree-Law No. (13) of 2016 on the Establishment of the Federal Tax Authority, and its amendments,
And Federal Decree-Law No. (28) of 2022 on Tax Procedures,
And Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses,
Article (1) - Definitions
The words and expressions in this Decision shall have the same meanings assigned to them in the aforementioned Federal Decree-Law No. (47) of 2022 ("Corporate Tax Law"), and the following words and expressions shall have the meanings assigned to each of them, unless the context otherwise requires:
| Accounting Standards |
: |
The accounting standards specified by a decision issued by the Minister for the purposes of the Corporate Tax Law. |
| Financial Statements |
: |
A complete set of statements as defined in accordance with the accounting standards applied by the Taxable Person, including but not limited to the income statement, statement of other comprehensive income, balance sheet, statement of changes in equity, and statement of cash flows. |
| Immovable Property |
: |
Immovable property as defined in a decision issued by the Cabinet for Corporate Tax purposes. |
| Qualifying Immovable Property |
: |
Immovable property that meets the conditions stipulated in Clause (1) of Article (2) of this Decision. |
| Intangible Assets |
: |
Intangible assets as defined in the accounting standards applied by the Taxable Person. |
| Qualifying Intangible Assets |
: |
Intangible assets that meet the conditions stipulated in Clause (1) of Article (3) of this Decision. |
| Financial Assets |
: |
Financial assets as defined in the accounting standards applied by the Taxable Person. |
| Financial Liabilities |
: |
Financial liabilities as defined in the accounting standards applied by the Taxable Person. |
| Qualifying Financial Assets |
: |
Financial assets that meet the conditions stipulated in Clause (1) of Article (4) of this Decision. |
| Qualifying Financial Liabilities |
: |
Financial liabilities that meet the conditions stipulated in Clause (1) of Article (4) of this Decision. |
Article (2) - Adjustments to Taxable Income related to Gains Recognised on Immovable Property Owned before the Taxable Person’s First Tax Period
1. For the purposes of paragraph (i) of Clause (2) of Article (20) and Clause (1) of Article (61) of the Corporate Tax Law, a Taxable Person may elect to adjust its Taxable Income to account for gains on any immovable property that meets all of the following conditions:
a. The immovable property was owned before the first Tax Period.
b. The immovable property was measured in the Financial Statements on a historical cost basis.
c. The immovable property was disposed of or deemed to be disposed of during or after the first Tax Period for the purposes of determining the Taxable Income for a value exceeding the net book value.
2. If Clause (1) of this Article is applied, upon the disposal of Qualifying Immovable Property, the Taxable Person shall make one of the following adjustments for each Qualifying Immovable Property:
a. Exclude the amount of gain that would have arisen at the beginning of the first Tax Period if the Qualifying Immovable Property was disposed of at market value and the cost of the Qualifying Immovable Property was equal to the higher of the original cost and the net book value.
b. Exclude the amount of the recognised gain in respect of the Qualifying Immovable Property calculated in accordance with the provisions of Clause (4) of this Article.
3. For the purposes of paragraph (a) of Clause (2) of this Article, the amount used as the market value for the Qualifying Immovable Property shall be determined by the competent government authority in the State.
4. For the purposes of paragraph (b) of Clause (2) of this Article, the excluded gain amount shall be calculated as follows:
a. Calculate the amount of gain that would have arisen upon the disposal of the Qualifying Immovable Property if its cost was equal to the higher of the original cost and the net book value at the beginning of the first Tax Period.
b. Divide the number of days the Qualifying Immovable Property was owned before the first Tax Period by the total number of days the Qualifying Immovable Property was owned.
c. Multiply the amount calculated in paragraph (a) of this Clause by the amount calculated in paragraph (b) of this Clause.
d. The amount calculated in paragraph (c) of this Clause shall be the amount of gain on the Qualifying Immovable Property excluded from the Taxable Income during the relevant Tax Period.
5. The election under Clause (1) of this Article shall be made for each Qualifying Immovable Property when submitting the first Tax Return, in accordance with the forms and procedures specified by the Authority, and such election shall be irrevocable, except in exceptional cases and subject to the approval of the Authority.
Article (3) - Adjustments to Taxable Income related to Gains Recognised on Intangible Assets Owned before the Taxable Person’s First Tax Period
1. For the purposes of paragraph (i) of Clause (2) of Article (20) and Clause (1) of Article (61) of the Corporate Tax Law, a Taxable Person may elect to adjust its Taxable Income to account for gains on all intangible assets that meet all of the following conditions:
a. The intangible assets were owned before the first Tax Period.
b. The intangible assets were measured in the Financial Statements on a historical cost basis.
c. The intangible assets were disposed of or deemed to be disposed of during or after the first Tax Period for the purposes of determining the Taxable Income for a value exceeding the net book value.
2. If Clause (1) of this Article is applied, the Taxable Person shall, upon disposal, exclude the amount of the recognised gain on the Qualifying Intangible Asset calculated in accordance with the provisions of Clause (3) of this Article.
3. For the purposes of Clause (2) of this Article, the excluded gain amount shall be calculated as follows:
a. Calculate the amount of gain that would have arisen upon the disposal of the Qualifying Intangible Asset if its cost was equal to the higher of the original cost and the net book value at the beginning of the first Tax Period.
b. Divide the number of days the Qualifying Intangible Asset was owned before the first Tax Period by the total number of days the Qualifying Intangible Asset was owned.
c. Multiply the amount calculated in paragraph (a) of this Clause by the amount calculated in paragraph (b) of this Clause.
d. The amount calculated in paragraph (c) of this Clause shall be the amount of gain on the Qualifying Intangible Asset excluded from the Taxable Income during the relevant Tax Period.
4. The election under Clause (1) of this Article shall be made when submitting the first Tax Return, shall apply to all Qualifying Intangible Assets, and shall be irrevocable, except in exceptional cases and subject to the approval of the Authority.
5. The number of days a Qualifying Intangible Asset was owned before the first Tax Period, as stipulated in paragraph (b) of Clause (3) of this Article, shall not exceed a period equal to (10) ten years, except in exceptional cases and subject to the approval of the Authority.
Article (4) - Adjustments to Taxable Income related to Gains and Losses Recognised on Financial Assets and Financial Liabilities Owned before the Taxable Person’s First Tax Period
1. For the purposes of paragraph (i) of Clause (2) of Article (20) and Clause (1) of Article (61) of the Corporate Tax Law, a Taxable Person may adjust its Taxable Income to account for gains and losses on all financial assets and financial liabilities that meet all of the following conditions:
a. The financial assets or financial liabilities were owned before the first Tax Period.
b. The financial assets or financial liabilities were measured in the Financial Statements on a historical cost basis.
2. If Clause (1) of this Article is applied, upon the disposal of Qualifying Financial Assets and Qualifying Financial Liabilities, the Taxable Person shall exclude the amount of gain or loss that would have arisen at the beginning of the first Tax Period if the Qualifying Financial Assets or Qualifying Financial Liabilities were disposed of at market value and the cost of these assets or liabilities was equal to the net book value.
3. The election under Clause (1) of this Article shall be made when submitting the first Tax Return, shall apply to all Qualifying Financial Assets and Qualifying Financial Liabilities, and shall be irrevocable, except in exceptional cases and subject to the approval of the Authority.
Article (5) - Ownership of Immovable Property, Intangible Assets, Financial Assets, and Financial Liabilities by Members of a Qualifying Group or a Tax Group
1. This Article shall apply to immovable property, intangible assets, financial assets, and financial liabilities held only by the Taxable Person and by one or more of the following persons:
a. A member of the same Qualifying Group as the Taxable Person who acquired the relevant assets or liabilities in accordance with the provisions of Clause (1) of Article (26) of the Corporate Tax Law.
b. A member of the same Tax Group as the Taxable Person who acquired the relevant assets or liabilities in accordance with the provisions of Clause (1) of Article (42) of the Corporate Tax Law.
2. For the purposes of this Article:
a. The assets, other than financial assets, stipulated in Clause (1) of this Article, shall be referred to as "Transferred Non-Financial Assets".
b. All assets and liabilities stipulated in Clause (1) of this Article, including the Transferred Non-Financial Assets, shall be referred to as "Transferred Assets and Liabilities".
c. A transfer that is not covered, or would not be covered if the Corporate Tax Law was in effect, in accordance with the provisions of Clause (1) of Article (26) and Clause (1) of Article (42) of the Corporate Tax Law, shall be referred to as a "Non-Qualifying Transfer".
3. For the purposes of paragraph (a) of Clause (1) of Article (2), paragraph (a) of Clause (1) of Article (3), and paragraph (a) of Clause (1) of Article (4) of this Decision, the term "ownership" of the Transferred Assets and Liabilities includes ownership by any person under Clause (1) of this Article.
4. For the purposes of paragraph (b) of Clause (4) of Article (2) and paragraph (b) of Clause (3) of Article (3) of this Decision, the ownership period of the Transferred Non-Financial Assets includes the ownership period by any person under Clause (1) of this Article, excluding any ownership period prior to the last Non-Qualifying Transfer.
Article (6) - Publication and Entry into Force
This Decision shall be published and shall come into effect from the day following the date of its publication.