Can a company elect the realisation basis for gains and losses?
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Yes — if your company prepares accrual-basis accounts, you may elect the realisation basis. You must make the election in your first tax period, and once made it cannot be reversed.
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The detail
Yes. A Taxable Person that prepares Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses on a realisation basis (Article 8(1) of MD 134 of 2023). The election must be made during the first Tax Period and is irrevocable, except in exceptional circumstances approved by the Authority (Article 20(3) of MD 134). Banks and insurance providers are required to elect the realisation basis only (Article 8(2)). The election means unrealised gains and losses are excluded from Taxable Income until a realisation event occurs, such as disposal or settlement (FTA Corporate Tax Returns Guide).1
What the law says
- A Taxable Person preparing accrual-basis Financial Statements may elect to recognise gains and losses on a realisation basis (Article 8(1) of Ministerial Decision No. 134 of 2023).2
- The election is made during the first Tax Period and is irrevocable, except in exceptional circumstances with Authority approval (Article 20(3) of Ministerial Decision No. 134 of 2023).3
- Banks and insurance providers that prepare accrual-basis Financial Statements may elect to recognise gains and losses only on a realisation basis (Article 8(2) of Ministerial Decision No. 134 of 2023).2
What it depends on
- You must prepare Financial Statements on an Accrual Basis of Accounting for the election to be available.2
- The election must be made during the first Tax Period — it cannot be made later.3
- If you are a bank or insurance provider, you must use the realisation basis only, with no option for a different basis.2
Check before you rely on it
- Confirm your company prepares accrual-basis financial statements.
- Make the election in your first Corporate Tax return or as directed by the FTA filing process.
- Check you are not a bank or insurance provider, which have a mandatory realisation basis.
Sources (3) — read the official text
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Article 26 – Transfers Within a Qualifying Group
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Article 26 – Transfers Within a Qualifying Group 1. No gain or loss needs to be taken into account in determining the Taxable Income in relation to the transfer of one or more assets or liabilities between two Taxable Persons that are members of the same Qualifying Group. 2. Two Taxable Persons shall be treated as members of the same Qualifying Group where all of the following conditions are met: a. The Taxable Persons are juridical persons that are Resident Persons, or NonResident Persons that have a Permanent Establishment in the State. b. Either Taxable Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in the other Taxable Person, or a third Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons. c. None of the Persons are an Exempt Person. d. None of the Persons are a Qualifying Free Zone Person. e. The Financial Year of each of the Taxable Persons ends on the same date. f. Both Taxable Persons prepare their financial statements using the same accounting standards. 3. For the purposes of this Decree-Law, where a Taxable Person applies Clause 1 of this Article: a. the asset or liability shall be treated as being transferred at its net book value at the time of transfer so that neither a gain nor a loss arises; and Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 33 b. the value of any consideration paid or received against the transfer of the asset or liability shall equal the net book value of the transferred asset or liability. 4. The provision of Clause 1 of this Article shall not apply where, within (2) two years from the date of the transfer, any of the following occurs: a. There is a subsequent transfer of the asset or liability outside of the Qualifying Group. b. The Taxable Persons cease to be members of the same Qualifying Group. 5. Where Clause 4 of this Article applies, the transfer of the asset or liability shall be treated as having taken place at Market Value at the date of the transfer for the purposes of determining the Taxable Income of both Taxable Persons for the relevant Tax Period.
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Article 8 – Conditions to Elect the Use of the Realisation Basis
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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
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Article 20.
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Article 20. 3. For the purposes of Clauses 1 and 2 of this Article, the decision to make an election, or not to make an election, shall be made by the Taxable Person during the first Ministerial Decision No. 134 of 2023 – As published by Ministry of Finance 7 Tax Period and shall be deemed irrevocable, except under exceptional circumstances and pursuant to approval by the Authority.
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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