Income Tax Regulation amended requiring more taxpayers to pay their taxes in US Dollars

On 12 September 2024, the Fifth Amendment to the Income Tax Regulation (Regulation Number 2024/R-84) was published in the Government Gazette.

This amendment introduces significant changes concerning the payment currency for taxes imposed under the Income Tax Act, and the presentation currency of tax returns. These changes include:

Payment currency:

• • Section 108 of the Income Tax Regulation is amended to require persons whose functional currency is a currency other than Rufiyaa to pay all taxes imposed under the Income Tax Act in United States Dollars. This includes income tax, employee withholding tax, non-resident withholding tax, and capital gains withholding tax.
  • This change would be applicable from tax year 2024 with respect to the payment of final and interim income tax liabilities, except for the first interim payment for the year 2024.
  • For the payment of employee withholding tax, non-resident withholding tax, and capital gains withholding tax, this change will apply to payments pertaining to periods ending on or after 31 October 2024. This means that taxpayers with functional currencies other than Rufiyaa will have to pay their non-resident withholding tax and employee withholding tax in United States Dollars, effective from taxable periods from October 2024 onwards.
  • Under section 60(b) of the Income Tax Regulation, taxpayers are required to determine their functional currency by applying the principles prescribed in IAS 21 – The Effects of Changes in Foreign Exchange Rates. Based on the guidance provided in IAS21, it is generally understood that the functional currency is the currency of the primary economic environment in which an entity operates. This would normally be the currency in which an entity primarily generates and expends cash. .

Presentation currency:

• • Section 106 of the Income Tax Regulation now requires taxpayers with a functional currency other than Rufiyaa to present their tax returns (including employee withholding tax returns, non-resident withholding tax returns, and capital gains withholding tax returns), financial statements, and other documents required to be submitted along with the tax returns, in United States Dollars.
  • This change will apply to tax returns for taxable periods ending on or after 31 October 2024, but does not apply to the first interim return for 2024.

As a result of this new amendment, businesses with a functional currency other than Rufiyaa will face significant impacts, as they are now required to make all income tax payments, including employee withholding tax and non-resident withholding tax payments, in United States Dollars.