General Rules for Determining Taxable Income – Article 20 – Corporate Tax Law

Article 20 – 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. The Taxable Income for a Tax Period shall be the Accounting Income for that period, and to the extent applicable, adjusted for the following:

1. Any unrealised gain or loss under Clause 3 of this Article.
2. Exempt Income as specified in Chapter Seven of this Decree-Law.
3. Reliefs as specified in Chapter Eight of this Decree-Law.
4. Deductions as specified in Chapter Nine of this Decree-Law.
5. Transactions with Related Parties and Connected Persons as specified in Chapter Ten of this Decree-Law.
6. Tax Loss relief as specified in Chapter Eleven of this Decree-Law.
7. 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.
8. 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.
9. 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:

1. all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards; or
2. 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:

1. “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.
2. “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.
3. “Assets and liabilities held on revenue account” refers to assets and liabilities other than those held on a capital account.
4. 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:

1. The circumstances and conditions under which a Person may prepare financial statements using the cash basis of accounting.
2. Any adjustments to the accounting standards to be applied for the purposes of determining the Taxable Income for a Tax Period.
3. 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.