Currency Conversion in CT Calculations

The Federal Tax Authority (FTA) has released Decision No. 13 of 2023 on the conversion of amounts quantified in a currency other than the United Arab Emirates Dirham (AED). The new decision is likely to offer more clarity over the UAE corporate tax calculations.

The new decision describes a set of conditions to ensure taxable persons accurately convert amounts in foreign currency into AED while calculating the Corporate Tax Payable and submitting the related corporate tax return in the UAE. However, it is advisable to seek the advice of corporate tax consultants in Dubai before making any tax-related decisions.

This blog sheds light on the key provisions listed in the Decision titled “Determination of Conditions for Conversion of Amounts Quantified in a Currency other than the United Arab Emirates Dirham for the Purposes of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses”. Read ahead to learn more:

Conditions for Currency Conversion

Taxable persons using a currency for accounting purposes other than AED are required to convert such amounts to AED as per the following conditions:

  1. Conversion Order: Taxable Persons need to convert the foreign currency into AED in the following order:
  2. a)Firstly, the spot rate published by the Central Bank of the UAE as per the date of the transaction, if the accounting system of the Taxable Person is able to convert the currency of each transaction, or the number of transactions makes it practical to convert the amounts manually
  3. b)If it is not practical to use the spot rate, the average monthly exchange rate of the Central Bank of the UAE shall be used where such rate provides an acceptable approximate estimation of the Corporate Tax Payable based on the number and timing of transactions within the Financial Year
  4. c)If it is not practical to use the exchange rates in (a) and (b), the average annual exchange rate of the Central Bank of the UAE can be used
  5. Continuous Conversion

The Taxable Person should use a currency conversion method continuously to calculate all relevant amounts throughout the Tax Period.

  1. Record-keeping

The Taxable Person shall keep records documenting the reason for selecting a method for currency conversion, rates used, rationale, and mechanisms applied to all currency conversion accounts. Corporate tax advisers in Dubai can advise taxable persons on the record-keeping requirement

  1. Changes in Method

In case the Taxable Person changes the currency conversion method in a Tax Period, they should keep records documenting the relevant reason and rationale.

Implementation of the Decision No 13 of 2023

The Decision has become effective as of 1st June 2023. Learn more about the provisions listed in the Decision by talking to the best corporate tax professionals in Dubai, UAE.

What to do next?

The new guidelines released by the FTA should be treated as a significant step towards streamlining the process of Corporate Tax compliance in the UAE and providing clarity to businesses operating in the country. Taxable persons are advised to review and adapt their practices accordingly to ensure compliance with these newly issued regulations. It is advisable to avail of corporate tax services in Dubai to ensure seamless compliance with the provisions in the Decision as well as the Corporate Tax Law.

Hire the Best Corporate Tax Advisers in Dubai, UAE

Ensuring compliance with the UAE corporate tax law can be a complex task as the country is new to the direct tax regime. Businesses need to constantly keep track of all the official updates to ensure seamless corporate tax compliance in the UAE. Tax Gian, a brand of Jitendra Tax Consultants (JTC), can act as a compass for businesses, showing them the right direction to take. We have a team of highly qualified tax experts who can guide businesses on all aspects of the UAE corporate tax law including tax registration, formation of tax groups, transfer pricing etc. Call us today to avail yourself of comprehensive corporate tax advisory services in Dubai, UAE.

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