FTA Publishes Decision on Currency Conversion for Taxable Persons
The Federal Tax Authority (FTA) has recently published Decision No. 13 of 2023, which provides guidance on the conversion of amounts to UAE Dirhams for Taxable Persons who use a different currency for accounting purposes. This decision aims to ensure consistency and accuracy in the conversion process, thereby facilitating tax compliance.
According to the decision, there are general rules that must be followed when converting amounts to UAE Dirhams. Taxable Persons have the option to use the spot rate of the Central Bank of UAE, or the average monthly or annual exchange rate if the spot rate is not practical. It is important to note that the chosen currency conversion method must be used continuously throughout the tax period and supported by records that provide reasons, rates used, rationale, and mechanisms applied.
The FTA’s decision is in line with international best practices and aims to provide clarity and transparency to Taxable Persons operating in the UAE. By establishing clear guidelines for currency conversion, the FTA aims to ensure consistency and accuracy in tax reporting, which is crucial for maintaining the integrity of the tax system.
Taxable Persons are required to convert their amounts to UAE Dirhams for various purposes, including tax calculations, financial reporting, and compliance with the UAE’s tax laws and regulations. The FTA’s decision provides much-needed guidance on how to perform this conversion accurately and efficiently.
The use of the spot rate of the Central Bank of UAE is the preferred method for currency conversion. This rate is widely recognized and accepted as the most accurate and reliable measure of exchange rates. However, if the spot rate is not practical, Taxable Persons can use the average monthly or annual exchange rate. It is important to note that the chosen method must be consistently applied throughout the tax period to ensure consistency and accuracy in reporting.
To ensure compliance with the FTA’s decision, Taxable Persons must maintain records that support their currency conversion method. These records should include the reasons for choosing a particular method, the rates used, the rationale behind the chosen method, and the mechanisms applied for conversion. By maintaining detailed records, Taxable Persons can demonstrate their adherence to the FTA’s guidelines and ensure transparency in their tax reporting.
The FTA’s decision is a significant development in the UAE’s tax landscape. It provides much-needed clarity and guidance on currency conversion for Taxable Persons, ensuring consistency and accuracy in tax reporting. The decision reflects the FTA’s commitment to facilitating tax compliance and maintaining the integrity of the tax system.
In conclusion, the FTA’s decision No. 13 of 2023 provides important guidance on the conversion of amounts to UAE Dirhams for Taxable Persons. By establishing clear rules and guidelines, the FTA aims to ensure consistency and accuracy in tax reporting, thereby facilitating tax compliance. Taxable Persons are encouraged to review the decision and ensure they have the necessary mechanisms and records in place to comply with the FTA’s guidelines.
