Deductible Expenses under UAE Corporate Tax: When it comes to calculating corporate tax in the United Arab Emirates (UAE), understanding which expenses are deductible can significantly impact your bottom line. In this blog post, we’ll break down the basics of deductible expenses, providing you with a simple guide to navigate through the complexities of corporate tax deductions.

Essential Deductible Expenses for Businesses in the UAE

Here are some of the best rules that how we can claim Essential Deductible Expenses for Businesses in the UAE. By taking advantage of these rules, you can optimize your tax planning and reduce your tax liability.

When it comes to maximizing tax savings for your business in the United Arab Emirates (UAE), it is important to understand the rules surrounding deductible expenses.

Let’s go inside!

Wholly and Exclusively for Business Purposes

To be eligible for deduction, expenses must be incurred wholly and exclusively for the purpose of deriving taxable income. This means that any legitimate business expense directly related to your company’s operations can be considered for deduction.

It’s essential to keep proper documentation to support these expenses.

Apportionment for Dual-Purpose Expenses

In cases where expenses have a dual purpose, such as being used for both personal and business reasons, apportionment is necessary.

The relevant portion of the expenditure that is solely for business purposes can be treated as deductible. Proper record-keeping and documentation play a crucial role in determining the business portion of these expenses.

Timing and Accounting Methods

Different types of expenses may have varying timing for deductions, depending on the accounting method applied.

For capital assets, expenditure is typically recognized through depreciation or amortization deductions over the economic life of the asset.

Understanding the appropriate timing for deducting various expenses can optimize your tax planning strategy.

Discover the different types of bank accounts in the UAE and find your perfect banking solution. Read more: Types of bank accounts in the UAE

Non-Fully Deductible Expenses

It’s important to note that certain expenses deductible under general accounting rules may not be fully deductible for corporate tax purposes. These expenses must be added back to the accounting income to determine the taxable income.

Let’s check some of Examples of partially or non-deductible expenses.

Non-Deductible Expenses

Below is list of expenses that are not allow to be deductible under the UAE Corporate Tax.

• Bribes
• Fines and penalties (other than amounts awarded as compensation for damages or breach of contract).
• Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity.
• Dividends and other profits distributions.
• Corporate Tax imposed under the Corporate Tax Law.
• Expenditure not incurred wholly and exclusively for the purposes of the Taxable Person’s Business.
• Expenditure incurred in deriving income that is exempt from Corporate Tax.

Client Entertainment Expenditure

If Business enterprise incurred any expenses for the entertainment of Clients. In such a case, only Partial deduction of 50% of the amount of the expenditure is allowed under the UAE Corporate Tax.

Interest Expenditure

Businesses are allowed to deduct the interest expenses they incur on loans up to a certain threshold. The threshold is usually determined based on a percentage of the business’s EBITDA.

However, there are certain activities or sectors that may have different rules or restrictions on this deduction.

Deduction of net interest expenditure exceeding a certain de minimum threshold up to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amortization (except for certain activities).

How the UAE is fostering a business-friendly environment and attracting companies with favorable tax advantages. Read more: UAE’s Tax Policy: Empowering Businesses through Corporate Tax Exemptions in the UAE

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