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Unrealised gains and losses

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

Are unrealised gains taxed under UAE Corporate Tax?

Yes, in the period they arise, unless a realisation basis election covers them. Which movements it covers depends on the limb elected.

Per Federal Decree-Law No. 47 of 2022, Article 20(2)(a), 20(3) and 20(4), General Rules for Determining Taxable Income

An unrealised gain or loss is taken into account in determining Taxable Income for the period in which it arises, unless an election under Article 20(3) puts it on a realisation basis — and whether that election reaches a particular movement depends on the limb elected: fair value and impairment accounting under limb (a), or capital account under limb (b), which expressly keeps revenue-account unrealised amounts in charge.

This is head (a) of Article 20(2) applied to one amount. Its output is the adjustment to Taxable Income for the period: the movement itself where it is taken into account, and nil where it is deferred to realisation.

When a movement waits, and when it does not

Three routes, and the asymmetry between the limbs is the whole of it.

No election under Article 20(3)

Nothing is deferred. The applicable accounting standards' treatment carries through, unrealised amounts included.

Election under limb (a) — fair value and impairment

The test is not the account but the accounting. A movement on an asset or liability subject to fair value or impairment accounting waits for realisation; one outside that scope does not.

  • Subject to fair value or impairment accounting — taken on realisation
  • Not subject to it — taken into account in the period

Election under limb (b) — capital account

Article 20(3)(b) defers capital-account movements and, in as many words, keeps revenue-account movements in charge.

  • Held on capital account — taken on realisation
  • Held on revenue account — taken into account in the period

Article 20(4) — the terms the second limb turns on

  • 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 as non-current liabilities
  • Assets and liabilities held on revenue account — those other than the above
  • An unrealised gain or loss — includes an unrealised foreign exchange gain or loss

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. Only the fact the elected limb turns on is asked for — asking both would put a question to the reader that the article does not.

  2. 2

    No election under Article 20(3)

    Without an election nothing is deferred: the accounting treatment carries through to Taxable Income.

  3. 3

    Election under limb (a)

    Whether the asset or liability is subject to fair value or impairment accounting decides it. The account it is held on is irrelevant under this limb.

  4. 4

    Election under limb (b)

    Capital account defers; revenue account does not. Article 20(3)(b) keeps revenue-account unrealised amounts in charge expressly.

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.

Investment property revaluation, limb (b)

A property company that elected the realisation basis for capital-account assets revalues its investment property upward by AED 8,000,000 at the year end.

Computed

The unrealised gain of AED 8,000,000 is deferred to realisation as computed: the election is under Article 20(3)(b) and the asset or liability is held on capital account, so the movement is taken on realisation. Based on the figures you supplied, the adjustment to Taxable Income for the period under Article 20(2)(a) is nil.

Workings

Unrealised gain for the periodArticle 20(2)(a) — the movement as supplied
AED 8,000,000
Adjustment to Taxable Income for the periodnil — deferred to realisation, so no adjustment this period
AED 0

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

Trading stock write-down, limb (b)

The same company writes down trading inventory by AED 1,200,000. Inventory is held on revenue account, which Article 20(3)(b) leaves in charge.

Computed

The unrealised loss of (AED 1,200,000) is taken into account as computed: the election is under Article 20(3)(b), which expressly keeps unrealised amounts on assets and liabilities held on revenue account in charge. Based on the figures you supplied, the adjustment to Taxable Income for the period under Article 20(2)(a) is (AED 1,200,000).

Workings

Unrealised loss for the periodArticle 20(2)(a) — the movement as supplied
(AED 1,200,000)
Adjustment to Taxable Income for the periodtaken into account in the period it arose
(AED 1,200,000)

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

Fair-value portfolio gain, limb (a)

A group that elected limb (a) holds a listed equity portfolio measured at fair value through profit or loss, which gained AED 3,500,000 over the period.

Computed

The unrealised gain of AED 3,500,000 is deferred to realisation as computed: the election is under Article 20(3)(a) and the asset or liability is subject to fair value or impairment accounting, so the movement is taken on realisation. Based on the figures you supplied, the adjustment to Taxable Income for the period under Article 20(2)(a) is nil.

Workings

Unrealised gain for the periodArticle 20(2)(a) — the movement as supplied
AED 3,500,000
Adjustment to Taxable Income for the periodnil — deferred to realisation, so no adjustment this period
AED 0

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

Unrealised foreign exchange loss, no election

A company with no Article 20(3) election retranslates a foreign currency loan at the year end, giving an unrealised exchange loss of AED 900,000. Article 20(4)(d) includes an unrealised exchange movement in the head.

Computed

The unrealised loss of (AED 900,000) is taken into account as computed: no Article 20(3) election was made, so the applicable accounting standards' treatment carries through to Taxable Income. Based on the figures you supplied, the adjustment to Taxable Income for the period under Article 20(2)(a) is (AED 900,000).

Workings

Unrealised loss for the periodArticle 20(2)(a) — the movement as supplied
(AED 900,000)
Adjustment to Taxable Income for the periodtaken into account in the period it arose
(AED 900,000)

Decided by the no election under article 20(3)

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:

  • Has the realisation basis election under Article 20(3) been made?
  • What is the unrealised gain or loss for the period? A loss is negative.

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