Unrealized Gains and Losses under UAE Corporate Tax: What Businesses Must Know

Kailash Kumar Manikandan
Jul 9, 2025
4 min read

Updated: Jul 19, 2025

Published by PNPC Global – Your Trusted Financial Partner

With the introduction of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), businesses operating in the Emirates are now subject to a new set of rules when it comes to calculating taxable income. A particularly important concept is the treatment of unrealized gains and losses—a topic that often raises confusion but offers strategic tax planning opportunities when managed correctly.

In this article, we provide a detailed explanation of the realization principle, its tax implications, and how businesses can apply it under UAE Corporate Tax.

What Are Unrealized Gains and Losses?

Unrealized gains and losses represent the change in value of assets or liabilities that a business still holds and has not yet sold or settled. These amounts are commonly reported in financial statements prepared under fair value or impairment accounting methods (as per IFRS, which is the mandated accounting standard under Ministerial Decision No. 114 of 2023, Article 2(1)).

For example, if a company owns real estate purchased for AED 6 million, and its current market value rises to AED 7.5 million, the AED 1.5 million difference is an unrealized gain—unless the property is sold.

Understanding OCI – Other Comprehensive Income

Other Comprehensive Income (OCI) includes income and expenses that are not recorded in the profit or loss section of the income statement but are instead reported directly in equity, as per IFRS standards.

Under UAE Corporate Tax, the tax treatment of OCI items depends on how they are presented and whether they are subsequently reclassified into profit or loss.

Category 1 – Items Permanently Recorded in Equity:

These OCI items remain in equity and are not recycled to the profit or loss account even upon disposal or settlement of the related asset.
Example: Revaluation surplus of land or buildings (if not transferred to P&L upon disposal).
Tax Treatment: Not included in taxable income under UAE Corporate Tax.

Category 2 – Items Reclassified to Profit or Loss:

These are initially recorded in OCI but are transferred to the profit or loss account upon the disposal, maturity, or settlement of the related asset.
Example: Foreign currency translation gains or fair value gains on debt instruments that are later sold.
Tax Treatment: Becomes taxable (or deductible) at the point of reclassification to profit or loss.

Tax Treatment of Unrealized Gains and Losses in the UAE

Under Article 20(1) of the Corporate Tax Law, taxable income is computed using accounting net profit, with adjustments. Article 20(2) clarifies that unrealized gains and losses included in accounting profit are normally included in taxable income unless a valid election is made under Article 20(3)(b). The following options are available:

1. No Election (Default Treatment)

Unrealized gains/losses from both capital and revenue accounts are included in taxable income as recognized in accounting profit (Article 20(2)).
No tax deferral applies.
No adjustment for unrealized provisions or reserves.

2. Election for All Assets and Liabilities (Full Realization Basis)

Taxable persons may elect to apply the realization basis to all assets and liabilities measured at fair value or impairment (Article 20(3)(b); Ministerial Decision No. 114 of 2023, Article 3(1)(a)).
Excludes unrealized gains/losses from taxable income until realization (e.g., sale, settlement, disposal).
Applies to both capital and revenue items.
Unrealized losses on capital assets cannot be deducted until they are realized (Ministerial Decision No. 114, Article 4(2)).

3. Election for Capital Account Only

Taxable persons may apply the realization basis only to capital items (defined as non-current assets following IFRS) (Ministerial Decision No. 114 of 2023, Article 3(1)(b)).
Unrealized gains/losses on capital items are deferred until realized.
Revenue-related items remain taxable on a current basis (Article 20(2)).
This election must be applied consistently across all capital items (Ministerial Decision 114, Article 3(2)).

Case Study: Real Estate Valuation and Corporate Tax

Ramsey Real Estate LLC, a UAE-resident company, revalued its investment property under the fair value model, resulting in a gain of AED 1.5 million.

Without realization basis: The gain is taxable even though the property wasn’t sold.
With realization basis elected: The gain is deferred and only taxed when the asset is sold, offering better cash flow management.

Important Considerations Before Making the Election

The election must be made in the first tax return submitted to the FTA (Ministerial Decision 114, Article 5).
Once made, it is binding and irrevocable unless FTA approval is granted for revocation (Ministerial Decision 114, Article 6).
Accounting policies must align with the election to avoid discrepancies (FTA Corporate Tax Guide, Compliance section).
Proper documentation must be maintained to substantiate fair value changes and elections (FTA recordkeeping rules under Article 54 of the Corporate Tax Law).

PNPC Global’s Strategic Guidance

Businesses in capital-intensive industries such as real estate, construction, investments, and logistics can benefit significantly from the realization basis election. However, the election involves strategic implications and must be evaluated case-by-case.

At PNPC Global, our experts help you: