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Realisation basis election

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-REAL-2024.1
By

Can UAE unrealised gains be taxed only when realised?

Yes, by election, for all fair value and impairment items, or for all items on capital account. Revenue account items stay taxed as they arise.

Per Federal Decree-Law No. 47 of 2022, Article 20(3)–(6), General Rules for Determining Taxable Income

A Taxable Person that prepares financial statements on the accrual basis may elect, subject to conditions the Minister may prescribe, to take gains and losses on a realisation basis — either for all assets and liabilities subject to fair value or impairment accounting, or for all assets and liabilities held on capital account at the end of the Tax Period, in which case unrealised gains and losses on assets and liabilities held on revenue account are still taken into account.

The election decides head (a) of Article 20(2) — whether an unrealised gain or loss enters Taxable Income in the period it arises or waits for realisation. It is a choice between two limbs, not a single switch, and limb (b) is not a deferral of everything: revenue-account unrealised amounts stay in charge.

The election and its vocabulary

Article 20(3) gives the two limbs; Article 20(4) defines the terms the second limb turns on.

The two limbs — alternatives, not cumulative

  • 20(3)(a) — all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards
  • 20(3)(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 arising on assets and liabilities held on revenue account at that date

Article 20(4) — what the second limb means by

  • Assets held on capital account — assets the Person does not trade, assets eligible for depreciation, or assets treated under the applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets
  • Liabilities held on capital account — liabilities whose incurring does not give rise to deductible expenditure under Chapter Nine, or liabilities treated under the applicable accounting standards as non-current liabilities
  • Assets and liabilities held on revenue account — assets and liabilities other than those held on capital account
  • An unrealised gain or loss — includes an unrealised foreign exchange gain or loss

Why the accrual basis is a precondition

The election exists to move an accrual preparer off fair value, so a cash-basis preparer has nothing to elect out of.

  • 20(5)(a) — the Minister may prescribe the circumstances and conditions under which a Person may prepare financial statements on the cash basis
  • 20(6) — a Taxable Person may apply to the Authority to change from the cash basis to the accrual basis, from the current or a future Tax Period

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. The limb is asked for only once there is an election to characterise — which limb of an election nobody made is a question with no answer.

  2. 2

    Accrual basis

    The election is open only to a Taxable Person preparing financial statements on the accrual basis. On any other basis it is not available, and whether that other basis is itself available is prescribed under Article 20(5)(a).

  3. 3

    Election

    Without an election, gains and losses follow the applicable accounting standards, unrealised amounts included.

  4. 4

    Which limb

    Limb (a) covers everything subject to fair value or impairment accounting. Limb (b) covers capital account only, and expressly keeps revenue-account unrealised amounts in charge.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Election under limb (b) — capital account

A property company preparing accrual-basis accounts elects the realisation basis for assets and liabilities held on capital account, to keep the fair value movements on its investment property out of Taxable Income until disposal.

Computed

The realisation basis applies as computed, under Article 20(3)(b): gains and losses on all assets and liabilities held on capital account at the end of the period are taken on realisation, while unrealised gains and losses on assets and liabilities held on revenue account at that date are still taken into account. Ministerial Decision No. 134 of 2023 Article 2 then excludes depreciation or other value changes above original cost until realisation, and brings them in when the asset or liability is realised. Ministerial Decision No. 134 of 2023 Article 8(3) requires the decision to elect, or not, to be made in the first Tax Period — in practice with the first Tax Return — and makes it irrevocable except in exceptional circumstances with the Authority's approval.

Decided by the election under limb (b) — capital account

Election under limb (a) — fair value and impairment

A group holding a listed equity portfolio measured at fair value through profit or loss elects the realisation basis for everything subject to fair value or impairment accounting.

Computed

The realisation basis applies as computed, under Article 20(3)(a): gains and losses on all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards are taken on realisation. Ministerial Decision No. 134 of 2023 Article 2 then excludes depreciation or other value changes above original cost until realisation, and brings them in when the asset or liability is realised. Ministerial Decision No. 134 of 2023 Article 8(3) requires the decision to elect, or not, to be made in the first Tax Period — in practice with the first Tax Return — and makes it irrevocable except in exceptional circumstances with the Authority's approval.

Decided by the election under limb (a) — fair value and impairment

No election

An accrual-basis preparer that makes no election, so its accounting treatment of unrealised movements carries through.

Computed

No Article 20(3) election as computed, so gains and losses are taken into account as the applicable accounting standards treat them, including unrealised amounts, based on the figures you supplied. Ministerial Decision No. 134 of 2023 Article 8(3) requires the decision to elect, or not, to be made in the first Tax Period — in practice with the first Tax Return — and makes it irrevocable except in exceptional circumstances with the Authority's approval.

Decided by the election

Not on the accrual basis

A small business preparing its accounts on a cash basis, with no accrual-basis statements for the period.

Computed

The Article 20(3) election is not available as computed: it is open to a Taxable Person that prepares financial statements on the accrual basis, and you have indicated these are not. Ministerial Decision No. 114 of 2023 allows the cash basis only where Revenue does not exceed AED 3,000,000, or in exceptional circumstances on application to the Authority.

Decided by the accrual basis

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

2 inputs still need your determination:

  • Are the financial statements for the period prepared on the accrual basis?
  • Has the realisation basis election under Article 20(3) been made?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader