Can a company elect the realisation basis for gains and losses?

Article 8 – Conditions to Elect the Use of the Realisation Basis 1. For the purposes of Clause 3 of Article 20 of the Corporate Tax Law, a Taxable Person that prepares Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses on a realisation basis, subject to the provisions of Clause 2 of this Article. 2. Banks and Insurance Providers that are Taxable Persons and that prepare Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses only on a realisation basis in accordance with paragraph (b) of Clause 3 of

Article 20 – General Rules for Determining Taxable Income 1. The Taxable Income of each Taxable Person shall be determined separately, on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State. 2. The Taxable Income for a Tax Period shall be the Accounting Income for that period, and to the extent applicable, adjusted for the following: a. Any unrealised gain or loss under Clause 3 of this Article. b. Exempt Income as specified in Chapter Seven of this Decree-Law. c. Reliefs as specified in Chapter Eight of this Decree-Law. d. Deductions as specified in Chapter Nine of this Decree-Law. e. Transactions with Related Parties and Connected Persons as specified in Chapter Ten of this Decree-Law. f. Tax Loss relief as specified in Chapter Eleven of this Decree-Law. g. Any incentives or special reliefs for a Qualifying Business Activity as specified Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 26 in a decision issued by the Cabinet at the suggestion of the Minister. h. Any income or expenditure that has not otherwise been taken into account in determining the Taxable Income under the provisions of this Decree-Law as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. i. Any other adjustments as may be specified by the Minister. 3. For the purposes of calculating the Taxable Income for the relevant Tax Period, and subject to any conditions that the Minister may prescribe, a Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realisation basis in relation to: a. all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards; or b. all assets and liabilities held on capital account at the end of a Tax Period, whilst taking into account any unrealised gain or loss that arises in connection with assets and liabilities held on revenue account at the end of that period. 4. For the purposes of paragraph (b) of Clause 3 of this Article: a. “Assets held on capital account” refers to assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets. b. “Liabilities held on capital account” refers to liabilities, the incurring of which does not give rise to deductible expenditure under Chapter Nine of this DecreeLaw, or liabilities treated under applicable accounting standards as noncurrent liabilities. c. “Assets and liabilities held on revenue account” refers to assets and liabilities other than those held on a capital account. d. An “unrealised gain or loss” includes an unrealised foreign exchange gain or loss. 5. Notwithstanding Clauses 1 and 3 of this Article, the Minister may prescribe any of the following for the purposes of this Decree-Law: a. The circumstances and conditions under which a Person may prepare financial statements using the cash basis of accounting. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 27 b. Any adjustments to the accounting standards to be applied for the purposes of determining the Taxable Income for a Tax Period. c. A different basis for determining the Taxable Income of a Qualifying Business Activity. 6. Subject to any conditions prescribed under Clause 5 of this Article, a Taxable Person can make an application to the Authority to change its method of accounting from cash basis to accrual basis from the commencement of the Tax Period in which the application is made or from the commencement of a future Tax Period. 7. In the case of any conflict between the provisions of this Decree-Law and the applicable accounting standards, the provisions of this Decree-Law shall prevail to that extent.

Article 2 – Other Adjustments to the Accounting Income for Determining the Taxable Income For the purposes of paragraph (i) of Clause 2 of Article 20 of the Corporate Tax Law, the Accounting Income shall be adjusted for the following in the calculation of the Taxable Income: 1. To include any realised or unrealised gains and losses that are reported in the Financial Statements insofar as they would not be subsequently recognised in the statement of income. 2. To make adjustments to replace the effect of Equity Method of Accounting, if applied, with the effect of Cost Method of Accounting as allowed under the Accounting Standards. 3. Where the Taxable Person elects to take into account gains and losses on a realisation basis in accordance with paragraph (a) of Clause 3 of Article 20 of the Corporate Tax Law, to make the following adjustments for the assets and liabilities under that paragraph: a. In cases other than upon realisation, to exclude any depreciation, amortisation Ministerial Decision No. 134 of 2023 – As published by Ministry of Finance 2 or other change in the value of the asset, other than a Financial Asset, to the extent that the adjustment amount relates to a change in the net book value exceeding the original cost of that asset. b. To exclude any change in the value of a liability or a Financial Asset, including any amortisation, except when calculating the gain or the loss upon the realisation of the liability or the Financial Asset. c. Upon the realisation of an asset or a liability, to include any amount that has not been recognised for Corporate Tax purposes under paragraphs (a) and (b) of this Clause and paragraph (a) of Clause 3 of Article 20 of the Corporate Tax Law, other than any such amount that arose prior to the most recent acquisition which was not under the application of either Clause 1 of Article 26 or Clause 1 of Article 27 of the Corporate Tax Law. 4. Where the Taxable Person elects to take into account gains and losses on a realisation basis in accordance with paragraph (b) of Clause 3 of Article 20 of the Corporate Tax Law, to make the following adjustments for the assets and liabilities under that paragraph: a. In cases other than upon realisation, to exclude any depreciation, amortisation or other change in the value of the asset, other than a Financial Asset, to the extent that the adjustment amount relates to a change in the net book value exceeding the original cost of that asset. b. To exclude any change in the value of a liability or a Financial Asset, including any amortisation, except when calculating the gain or the loss upon the realisation of the liability or the Financial Asset. c. Upon the realisation of an asset or a liability, to include any amount that has not been recognised for Corporate Tax purposes under paragraphs (a) and (b) of this Clause and paragraph (b) of Clause 3 of Article 20 of the Corporate Tax Law, other than any such amount that arose prior to the most recent acquisition which was not under the application of either Clause 1 of Article 26 or Clause 1 of Article 27 of the Corporate Tax Law. Ministerial Decision No. 134 of 2023 – As published by Ministry of Finance 3