General Rules for Determining Taxable Income
1. The Taxable Income of each Taxable Person shall be determined separately, on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State.
2. :To the extent applicable, the Accounting Income for the following VAT Registration shall determine the Taxable Income for a Tax Period
a) Any unrealised gain or loss under Clause 3 of this Article.
b) Exempt Income as specified in Chapter Seven of this Decree-Law.
c) Reliefs as specified in Chapter Eight of this Decree-Law.
d) Chapter Nine of this Decree-Law FTA VAT specifies deductions.
e) Transactions with Related Parties and Connected Persons as specified in Chapter Ten of this Decree-Law.
f) Tax Loss relief as specified in Chapter Eleven of this Decree-Law.
g) Any incentives or special reliefs for a Qualifying Business Activity as specified in a decision issued by the Cabinet at the suggestion of the Minister.
h) Any income or expenditure that has not otherwise been taken into account in determining the Taxable Income under the provisions of this Decree-Law as may be specified in a decision issued by the Cabinet at the suggestion of the Minister.
i) Any other adjustments as may be specified by the Minister.
3. For the purposes of calculating the Taxable Income for the relevant Tax Period, and subject to any conditions that the Minister may prescribe, a Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realisation basis in relation to:
a) all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards; or
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 that arises in connection with assets and liabilities held on revenue account at the end of that period.
4. For the purposes of paragraph (b) of Clause 3 of this Article:
a) “Assets held on capital account” refers to assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets.
b) “Liabilities held on capital account” refers to liabilities, the incurring of which does not give rise to deductible expenditure under Chapter Nine of this Decree-Law, or liabilities treated under applicable accounting standards as non-current liabilities.
c) “Assets and liabilities held on revenue account” refers to assets and liabilities other
than those held on a capital account.
d) An “unrealised gain or loss” includes an unrealised foreign exchange gain or loss.
5. Notwithstanding Clauses 1 and 3 of this Article, the Minister may prescribe any of the following for the purposes of this Decree-Law:
a) The circumstances and conditions under which a Person may prepare financial statements using the cash basis of accounting.
b) Any adjustments to the accounting standards to be applied for the purposes of determining the Taxable Income for a Tax Period.
c) A different basis for determining the Taxable Income of a Qualifying Business Activity.
6. Subject to any conditions prescribed under Clause 5 of this Article, a Taxable Person can make an application to the Authority to change its method of accounting from cash basis to accrual basis from the commencement of the Tax Period in which the application is made or from the commencement of a future Tax Period.
7. In the case of any conflict between the provisions of this Decree-Law and the applicable accounting standards, the provisions of this Decree-Law shall prevail to that extent.
Small Business Relief
1. For a tax period where VAT registration is required, a Resident Person who is a Taxable Person can opt to not have derived any Taxable Income.
a) the Revenue of the Taxable Person for the relevant Tax Period and previous Tax Periods does not exceed a threshold to be set by the Minister; and
b) the Taxable Person meets all other conditions prescribed by the Minister.
2. Where Clause 1 of this Article applies to a Taxable Person, the following provisions of this Decree-Law shall not apply:
a) Exempt Income as specified in Chapter Seven of this Decree-Law.
b) Reliefs as specified in Chapter Eight of this Decree-Law.
c)Deductions as specified in Chapter Nine of this Decree-Law for VAT services.
d) Tax Loss relief as specified in Chapter Eleven of this Decree-Law.
e) Article 55 of this Decree-Law.
3. The Authority may take the necessary measures to verify the compliance with the conditions of Clause 1 of this Article, and may request any relevant information or records from the Taxable Person within the timeline prescribed by the Authority.
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