IFRS 16 Tax impact

ifrs 16 tax impactIFRS 16 Tax impact of the new leasing standards IFRS 16 on leases became compelling 1 January 2019. Given this new standard, accounting disclosures for operating leases have been affected. IFRS 16 Tax impact realize huge changes to both the Income Statement furthermore, the Balance Sheet of the lessee. The relating tax impact for operating leases under the Income Tax Act, Cap 340 ought to be rethought. The IFRS 16 Tax impact for lessors are significantly unaltered.

Segment 59 of the Income Tax Act (“ITA”) accommodates the tax treatment of account leases. For a lease to qualify as an account lease under this area, thought is given to its compelling life, the choice to buy the property and the assessed remaining existence of the property. In light of this area, citizens can recognize account and operating leases which brings about various tax impact

IFRS 16 enquiries call @ +971 45 570 204 / Email Us : support@kgrnaudit.com

Introduction of IFRS 16

The International Accounting Standards Board gave IFRS 16 Leases (IFRS 16 or the new standard) in January 2016 with a powerful execution date of 1 January 2019. IFRS 16 supplanted the old standard, IAS 17. IFRS 16 was acquainted with dispose of all cockeyed sheets representing leases.

Effect of IFRS 16 on the privilege of utilization resources

Under the IFRS 16 Tax impact new standard, an agreement is or contains a lease if it passes on the privilege of utilization resources (basic resource) for a while in return for thought.


The IFRS 16 Tax impact new standard expects Lessees to perceive leases on their accounting reports aside from low worth resources and transient leases.

The lessee is required to at first perceive a privilege of utilization resource and a comparing obligation at the present estimation of future lease installments to be decided sheet. Any lease installments made diminishes the lease obligation just as the privilege of utilization resource.

A devaluation cost of the privilege of utilization resource and an intriguing tax on the remarkable lease risk is perceived in the pay articulation.

The above single accounting model never again recognizes money and operating leases from a leasing viewpoint just like the case under IAS 17. This IFRS 16 Tax implication implies leases that were recently arranged by lessees as operating leases and accordingly treated as cockeyed sheet rights or commitments may be perceived on the monetary record on the off chance that they meet the IFRS 16 criteria.


The IFRS 16 Tax impact representing lessors remains significantly unaltered in any case, lessors presently have new revelation necessities.

IFRS 16 enquiries call @ +971 45 570 204 / Email Us : support@kgrnaudit.com

Expense treatment

Finance lease

Area 59(3) of the ITA gives that a lease qualifies as an account leasing if any of the accompanying conditions are met:

• The finance lease term surpasses seventy-five percent of the successful existence of the leased property;

• The lessee has an alternative to buying the property at a fixed or definable cost at the termination of the lease; or

• The assessed leftover estimation of the property to the lessor at the lapse of the lease term is under 20% of it’s fairly estimated worth at the beginning of the lease.

An IFRS 16 Tax impact lessee was permitted to guarantee capital recompenses regarding a lease property just as deduct the intrigue cost brought about on lease installments.

The lessor under this course of action treated the intrigue salary got from the lessee as a feature of its assessable pay.

Operating lease

The lease in this example would be permitted to deduct the lease installments made to the lessor.

The lessor was permitted to guarantee capital remittances regarding the leased property. The IFRS 16 Tax impact salary got from the Lessee framed piece of its assessable pay

IFRS 16 enquiries call @ +971 45 570 204 / Email Us : support@kgrnaudit.com

Expense outcomes after actualizing IFRS 16

Finance lease

The expense law on the treatment of Finance leases continues as before. Segment 59 of the ITA accommodates tax outcomes of a money lease and these will keep on applying for Finance leases. If the lease under IFRS 16 Tax impact doesn’t meet the definition for a Finance lease under the ITA, at that point it is treated as an operating lease for tax purposes.

Operating lease

For operating leases, the Lessee isn’t qualified for guarantee capital remittances since the lessor claims recompenses regarding the leased resource. The intrigue cost in the pay articulation should be tax-deductible. Nonetheless, the devaluation taxed for the privilege of utilization resources isn’t a tax-deductible cost. The capital part of the occasional lease installment on the asset report in our view ought to be treated as a tax-deductible cost given that from a tax insightful the substance of the exchange doesn’t change yet just the accounting revelation. URA might be of an alternate view concerning the Tax deductibility of the capital part. Further commitment with the URA is urged to concur on this position.

The IFRS 16 Tax impact for lessors remain unchanged,

For example, they guarantee capital stipends and lease pay stays assessable.

Other leasing tax results

Instances of substances expected to be Finance mentally affected by the IFRS 16 Tax impact new standard include:

• Telecoms need to think about their agreements with tower

Organizations, information, and fixed-line contracts;

• Retail and buyer item substances, for example, markets, eatery networks, and filling stations need to consider their present agreements for space being involved while armada chiefs survey their client contracts;

• Banks with wide branch systems and difference ATM

Machines need to reassess their agreements;

• Lessees with contracts for the lease of property and office space; and

• Mining, oil and gas substances that lease gear just as land and structures.

In an ongoing IFRS 16 Tax impact Appeals Tribunal Case of KGRN decided that a cost caused for the lease of land isn’t an income cost and in like manner isn’t assess deductible.


Citizens ought to reassess their car lease agreements to decide if they qualify as leases under IFRS 16 Tax impact. When this is resolved, the right tax accounting standards ought to be applied.

IFRS 16 Tax Impact enquiries call @ +971 45 570 204 / Email Us : support@kgrnaudit.com

Related Services are Vat Consultancy Services in Dubai, VAT Accounting in Dubai, Tax Consultancy in Dubai

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Frequently Asked Questions

What is a lease under IFRS 16?

Since accounting leases under IFRS 16 outcomes in generously all leases being perceived on a lessee’s accounting report, the assessment of whether an agreement is (or contains) a lease turns out to be significantly more significant than it is under IAS 17 and IFRIC 4. Practically speaking, the primary effect will be on gets that are not in the authoritative document of a lease however include the utilization of a particular resource and subsequently may contain a lease –, for example, redistributing, contract assembling, transportation and force supply understandings. Right now, this assessment depends on IFRIC 4; in any case, IFRS 16 replaces IFRIC 4 with new direction that contrasts in some significant regards.

How do you account for lease under IFRS 16?

The standard gives a solitary lessee accounting model, expecting lessees to perceive resources and liabilities for all leases except if the lease  term is a year or less or the hidden resource has a low worth. Lessors keep on characterizing leases as working or fund, with IFRS 16’s way to deal with lessor accounting considerably unaltered from its ancestor, IAS 17.

What is the purpose of IFRS 16?

The target of IFRS 16 is to report data that (a) reliably speaks to lease exchanges and (b) gives a premise to clients of financial summaries to survey the sum, timing and vulnerability of incomes emerging from leases.

What does IFRS 16 replace?

IFRS 16 (International Financial Reporting Standard) is another standard for lease accounting which will come into power in January 2019. It will supplant the current IAS 17 lease accounting standard.

Does IFRS 16 apply to property leases?

The IASB has given another leases standard that expects Tenants to perceive most tenant agreements on their asset reports.

Tenants will apply a solitary accounting model for every single tenant agreement (with an exception for transient leases).

Landowner accounting is generously unaltered and the IAS 17 characterization guideline has been continued to IFRS 16.

Tenants that measure venture property at reasonable worth will likewise quantify lease ed speculation property at reasonable worth.

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