How to Deal with First Corporate Tax Return Filing in UAE?

Understanding the UAE's First Corporate Tax Regime

Are you a business owner wondering how to prepare for your first Corporate Tax return filing? Also, is it always in your question that if your business owns a property (Example:- Real Estate property) before the Corporate Tax is implemented and you sell after the Corporate Tax regime is implemented, will you pay tax for the entire profit? What are the steps that need to be followed to prepare, file, and comply with Corporate Tax regulations in the UAE? In this article, we will simplify these questions and explain all the questions in your mind.

The first step of preparation is registration of Corporate Tax and getting the Tax Registration Number (TRN). The deadlines for companies that are already established before and the companies registered after 01 March 2024 have been published by the Federal Tax Authority. Read More.

The second step is to analyze the books of accounts until the previous day of Corporate Tax applicability for your business and apply transitional rules. In this article, we are mainly focusing on transitional rules. If you are following the calendar year as your financial year, the applicability of Corporate Tax is with effect from 01 January 2024. The business needs to analyze its balance sheet as of 31 December 2023 and check for assets that can be adjusted under transitional rules. After applying transitional rules, the business shall make an opening balance sheet as of January 1, 2024.

Transitional Rule is mainly applicable for assets that were purchased before the implementation of UAE Corporate Tax and are expected to be sold at gain after the implementation of Corporate Tax. Ministerial Decision.120 of 2023 has provided a detailed guideline on transitional rules.

There are 5 points to be kept in mind while applying transitional rules.

Transitional rules can be applied for the below assets only.
1. Gain on Immovable Property (Example: Land, Building, etc.)
2. Gain on Intangible Property (Example: Copyright, Franchisee, etc.)
3. Gain or loss from financial assets and liabilities (example: shares, bonds, etc.)
Transitional rules can be applied by businesses that keep the assets and liabilities at cost. There are mainly 3 models of assets and liabilities in the books of accounts, which are the cost model, revaluation model, and fair value model.
The assets shall be held before the applicability of Corporate Tax for the business. This means this relief can be obtained only for historical assets.
The assets that are considered for transitional rule relief shall be expected to be sold at gain/profit after the first tax period.
This transitional rule is a transition from a Corporate Tax regime to a Corporate Tax regime and this election is irrevocable.

Now let us analyze the transitional rule application on unrealized gains along with some examples for easy understanding. How are the assets mentioned in point no? 01 can adjust under this rule.

1. Immovable Properties

Immovable properties can be adjusted using 2 methods:

a) Direct Method

If you have immovable properties in your business that were acquired before the first tax period, such assets can be valued using an approved organization or person by the authority. The list of approved valuation organizations/persons has been published by the authority.

Example: The company purchased the building on January 1, 2010, for AED 5 million. The life of an asset is determined as 20 years. They are using a cost model in the accounting records. The company approached the valuation firm for revaluing the property for the value as of 31 December 2023 (the company follows calendar year as financial year). The valuation report states that the value of the building as of 31 December 2023 is AED 20 million.

The company prepared the opening balance sheet as of January 1, 2024, and showed the revalued amount of AED 20 million. On 30 June 2025, the company sold the building for AED 25 million. Let us understand what the profit will be, which is taxable under UAE Corporate Tax in the tax year 2025.

Purchase Value as of January 1, 2010	AED 5,000,000
Revalued amount as of 31/12/2023	AED 20,000,000
Life of building	20 years
Depreciation of building from 01/01/2010 to 30/06/2025 (date of sale). The total period is 14.5 years. Accumulated Depreciation will be ( 5,000,000/20 = 250,000*14.5 years )	AED 3,625,000
Net Book value of the asset as of 30/06/2025 (purchase price less accumulated depreciation)	AED 1,375,000
The sale price of the building	AED 25,000,000
Profit from the sale of the building as per the books of accounts (sales price less net book value, which is AED 25,000,000 less AED 1,375,000)	AED 23,625,000
The gain can be excluded from profit which is subject to tax on revaluation of the asset (revalued amount AED 20,000,000 less higher of purchase cost AED 5,000,000 or net book value AED 1,375,000). Which is AED 20,000,000 less AED 5,000,000?	AED 15,000,000
Profit, which will be subject to Corporate Tax in the year 2025 ( AED 23,625,000 less AED 15,000,000).	AED 8,625,000

By applying transitional rules, the company has brought down their profit from AED 23,625,000 to AED 8,625,000.

b) Proportionate Method

In this method, the company is not required to obtain the valuation from an approved valuation person. Let us understand the proportionate method as well through an example.

From the above case, the only difference is that the company has not revolutionized assets at the first tax period, the rest all remain the same.

Purchase Value as of January 1, 2010	AED 5,000,000
Lift of building	20 years
Depreciation of building from 01/01/2010 to 30/06/2025 (date of sale). The total period is 14.5 years. Accumulated Depreciation will be (5,000,000/20 = 250,000*14.5 years).	AED 3,625,000
Net Book value of the asset as of 30/06/2025 (purchase price less accumulated depreciation)	AED 1,375,000
The sale price of the building	AED 25,000,000
Profit from the sale of the building as per the books of accounts (sales price less net book value, which is AED 25,000,000 less AED 1,375,000)	AED 23,625,000
Gain, which can be excluded from profit, which is subject to tax. Sale Price 25,000,000 less high purchase cost AED 5,000,000 or Net Book Value AED 1,375,000) = 20,000,000. AED 20,000,000 multiplied by the number of days of property owned at the first tax period, means from 01/01/2010 to 01/01/2024, which is 14 years, = AED 280,000,000. AED 280,000,000 divided by the Total period of ownership till the date of sale, which means from 01/01/2010 to 30/06/2025, which is 15.5 years = AED 18,064,516/-.	AED 18,064,516
Profit, which will be subject to corporate tax in the year 2025 (AED 23,625,000 less AED 18,064,516).	AED 5,560,484

Key Note: It is very important to choose the method in the first tax year. In the above case studies, if the company applies the direct method, its taxable income is AED 8,625,000/-. If they apply the proportionate method, the taxable income is AED 5,560,484/-. Since the election is irrevocable, it is very important in the first year, and here you need tax experts like Flyingcolour Tax Consultant.

2. Intangible Properties

While applying transitional rules for intangible assets, only one method is allowed, which is the proportionate method. The only difference while applying the proportionate method for immovable property and intangible assets is as below:

Immovable property: the number of years used by the asset before the first tax period can be as per actual.
Intangible property: the number of years used by the asset before the first period is limited to 10 years.

Let us bring the previous example, assuming that the asset is an intangible asset (example: copyright). Using the proportionate method, the income that can be excluded from Corporate Tax computation will be AED 12,903,225/- (AED 20,000,000*10 years/15.5 years), and taxable income will be AED 7,096,774/-.

3. Financial assets and liabilities

The only assets in the transitional rule that allow losses to be considered are financial assets and liabilities.

At the time, applying transitional rules for financial assets and liabilities below is the key rule;

Unlike movable properties and intangible assets, there is no need to consider the higher cost or net book value of the assets, always the cost of acquisition of financial assets and liabilities shall be considered.

Let us discuss a case study:

A company has the first tax year starting from 01/01/2024. They bought shares of another company for AED 100,000/- (AED 100 per share and number of shares: 1000). The shares were purchased on 01/01/2023 for AED 75,000 (AED 75 per share).

On 01/01/2025, the company sold the shares for AED 150,000 (AED 150 per share) and got a gain of AED 75,000 (AED 150,000 less AED 75,000). The income excluded from profit for Corporate Tax computation is profit AED 75,000 less profit for the pretax period AED 25,000 (opening value on 01/01/2024 AED 100,000 less purchase price on 01/01/2023 AED 75,000).

The taxable income is AED 50,000 (profit AED 75,000 less excluded profit AED 25,000).

The profit from sales of shares can also be exempted from UAE Corporate Tax Read More.

Always keep in mind that the below elections are related to transitional rules, which have to be elected in the first tax year and are irrevocable.

Election of transitional gain or loss as well as method of gain or loss calculation.
The realization-based taxation election.

To learn more about How to Deal with First Corporate Tax Return Filing in UAE?, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.