Deductible Expense Under The

1)   Introduction

The UAE Corporate Tax (“CT”) law has incorporated provisions for the deductibility of certain expenditures, specifying the degree to which they will be deductible from the taxable income of businesses. As per Article 28 of the Federal Decree Law No. 47 of 2022, any expense that is wholly and exclusively incurred for business purposes is allowed as a deductible expense.

2)   Objective  

• Ensure that expenses are incurred in a reasonable and justifiable manner, and not for personal or extravagant purposes.
• To prevent potential abuse and fraudulent claims.

3)   Partially Disallowed

·       Entertainment Expenditure
What? - Entertainment, amusement, or recreation expenditure
For Whom? -

• Customer
• Shareholder
• Supplier
• Other business partner
• Fraction?-50%

·       Interest Expenditure

• Net Interest Expenditure (“NIE”) allowed up to 30% of EBITDA.
• The amount of NIE disallowed can be carried forward and deducted in the subsequent (10) ten tax periods.      

4)   Disallowed Expenses

• Exempt Income
• Capital in nature.
• Fines and penalties
• Dividend/profit distributed.
• Bribes and other illicit payment
• Donation paid (except to Qualified Public Benefit Entity)
• Recoverable input VAT
• Non-business expenses, i.e., Personal expenses
• Such other expenses as may be specified by the Cabinet Minister.
• Taxes imposed outside UAE. 

5)   Key takeaway

• Companies are advised to maintain adequate documents to demonstrate that such expenses are related to their business.
• Assess whether the expenses are properly bifurcated to business and non-business activity.
• Assess whether the expenses has been recognized accurately to avoid any adjustments to the taxable income during an assessment.
• Entertainment expenditure incurred on behalf of employees will be 100% deductible if provided to them in order to enable them to perform their duties.

6)   How can Crowe help?

• In-depth qualitative analysis of the business expenses to ensure full compliance with UAE CT law.
• Assess the extent to which the expenses incurred fall within the scope of provisions governing deductible expenditures.
• Evaluate the risk of non-deduction of expenditure and its impact on corporate tax liability.