How does UAE corporate tax deal with unrealized business gains and losses?

The corporate tax UAE regime's treatment of unrealized profits and losses is outlined in section 5.2 of the Corporate Tax Public Consultation Document. Registered businesses are advised to avail of the services of reputable Corporate tax advisors UAE to have an in-depth understanding of the implementation of unrealized gains or losses.

The Scope of Unrealized Businesses Gains and Losses

An unrealized profit or loss occurs when the price of an asset held by a firm changes but with no transaction occurring to produce the profit or the profit would not be realized if a commercial property's worth rises, but without it being traded. A firm's commodity, gold, real estate, or any additional investment brought by investors that haven't yet been realized as a gain would be affected. When an article is auctioned for a gain and converted to cash, a profit is said to have been realized. When you keep a liability with a value that has dropped but hasn't sold it to cover the loss, that would be an unrealized loss.

Recording unrealized gains or losses

Usually, unrealized gains and losses are recorded to keep the track of accounting although they are not realized as yet. Accredited UAE tax agents can assist businesses to dissect how corporate tax will be implemented on unrealized gains and losses.

What is Unrealized Gain or Loss Tax Treatment?

Specific provisions will be conferred in the Corporate Tax Cabinet Resolution to specify when an unrealized gain or loss should be considered for determining taxable allowance. To determine whether the profit or loss is connected to revenue or capital sections, the provisions are given below:

  • Tax dealing regarding realized capital gain or loss

The word "capital items" refers to anything that will affect a corporation over the long run. Possession like machinery and long-term liabilities like loans to purchase real estate can also be classified as capital items. Unrealized profits or spills on capital items are excluded from the calculation of taxable income under the framework of corporate tax in UAE. The tax status of unrealized capital gains or losses can be further explained by corporate tax consultants in UAE.

  • Tax dealing regarding unrealized revenue gain or loss

Unrealized gains or losses are taken into account for determining taxable income if they result from a revenue source. Items with a short-term influence on a firm are considered revenue items on this basis. It covers properties other than capital and may include things like the business's goods for sale, maintenance on machinery and paraphernalia, wages for employees, salaries for hired people, etc.

Read more: Does the corporate tax law apply to partnerships?

What is the Basis for Figuring Out Taxable Income?

Corporations are compelled to use the accounting net gain or loss as reported in their financial statements(FS) to determine their taxable income as per corporate income tax UAE. By employing the established accounting rules and doctrines in the UAE, enterprises should create their financial accounts. Additionally, the tax year for industries must coincide with its financial accounting duration. The Gregorian calendar year is the default tax term for a firm if it lacks a financial accounting interval.

To calculate taxable dividends, some taxpayers, including startups and SMEs will be permitted to adopt alternative financial reporting criteria and processes. It will assist such businesses in accommodating and lowering compliance expenses.

Read more here: What is the dependent agent test under corporate tax UAE?

Seek Expert Corporate Tax Services Today!

For businesses to have an in-depth understanding of the corporate tax’s implementation on unrealized business gains and losses, it is essential to outsource the expert services of accredited tax Consultants in the UAE. Thus, contact us today and we shall be happy to assist you!


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