Essentially, accounting parameters determine the calculation of the taxable tax as per UAE corporate tax, the accounting procedure averts possible illegal activity in business-related matters and inflated deductions. Tax deduction refers to a sum of expenses that may be deducted from a taxable amount and it determines the tax that a taxable person has to pay. Thus, it is essential for corporations / taxable persons to seek the expert services of accredited tax agents to have a detailed insight into the purview of deductible tax under UAE corporate tax.
The scope of deductible expenses under article 28 of UAE Corporate Tax
The listing of expenses that may be deducted by a Taxable Person under Article 28 of the UAE Corporation Tax Legislation (Federal Decree Law no. 47 of 2022) to lower their Tax Payable is extensive.
Expenses made solely and completely for business purposes;
Deductions are conferred for expenses that the Taxable Person incurs "wholly and solely" for business reasons under the UAE corporate tax. Subsequently, any expenses that are reasonable and undertaken in the regular course of business to generate taxable income are deductible. In the taxable duration during which they are racked up, these expenses qualify for deductions. However, there is an exception in the case when expenses are incurred in the process of doing business that is "capital nature."
Spending that is done to serve two or more reasons, or multipurpose spending:
There may be instances where expenses are used for dual purposes or for more than one reason. An expense might be utilized for both professional and private reasons, for instance. A deduction is permitted for the following if the expense is incurred for more than one purpose:
- Any measurable fraction or component of the cost that is expended solely and completely to generate Taxable Gain
- A competent and fair calculation of any unspecified portion of the cost incurred to generate taxable earnings that take into consideration all the factors and conditions pertinent to the taxable person's business.
Corporate Tax Deductions that are not permissible as per Article 28
The following costs incurred by a taxpaying person during a taxable period cannot be deducted from their taxable income:
- Any outlay that wasn't made about the taxpayer's business.
- Any outlay made to generate exempted revenue.
- Losses unrelated to or originating from the Taxable Person's Organization.
- Any further spending that could be mandated by a Ministerial decree after a Minister's recommendation.
Spending on Interest - Article 29
BEPS (Base Erosion & Profit Shifting) are frequently utilized to offset interest costs. By using excessive amounts of loan funding through intra-group or Relevant Group dealings, the businesses claim interest deductions, which lowers their tax liability and helps them reduce taxes. The cap on accrued interest deductions is meant to make certain that there isn't excessive debt finance and that there are dealings of a legal commercial character. The UAE Administration has formulated provisions for restricting the deduction of interest expenses at 30% by OECD's (Organization for Economic Cooperation & Development) BEPS Action Plan 4- Interest Capping Rules.
Corporate tax deduction standards for interest expenditures
Interest expenses that qualify for a tax deduction must be paid during the tax period in which they were incurred.
But, the following restrictions apply to these deductions;
- Deduction limitation statute as per for General Interest.
- Deduction Limitation Rule for Specific Interest.
What does the term "entertainment expense" entail and its deduction rules?
The term "entertainment expenditure" refers to costs associated with hosting and entertaining customers, investors, vendors, and other corporate collaborators of the taxable person, including but not confined to costs associated with;
- Entrance fees.
- Gear and services for pleasure, fun, and enjoyment.
- Any additional costs that the Minister may impose.
The maximum amount that can be deducted for entertainment expenses is:
A Taxpayer may claim a deduction of up to 50% for any expenses spent, as per Article 32 of the Corporate Income Tax UAE.
Avail the expert services of 'Tax Consultant Dubai'
Essentially, it is advisable for corporations / taxable persons to seek the expert services of accredited tax consultants in UAE to have a detailed insight into the purview of deductible tax under UAE corporate tax. Thus, contact us today and we shall be happy to assist you.