The Corporate Tax Dubai is fairly a new tax imposed by the Federal Tax Authority (FTA) in UAE. There are different provisions of this law, one of the provisions is Deductibility of certain expenses. Article 28 of the Federal Decree Law no 47. of 2022 explains about the deductible expenses. It explains that any expense that is exclusively and wholly incurred for purposes of business is allowed as a deductible expense on given terms and conditions. This is done to ensure that the relief which is obtained from any expenses which are incurred for the purposes of generating taxable income as well as for addressing any possible situations of extra deductions or abuse. Once Corporate Tax Registration is done, you will be able to understand the provisions of this law. Several Corporate Tax consultants in Dubai are providing their services for Corporate Tax.  

What are the Objectives of Deductible Expenses? 

Deductions are made so that the taxation process can be streamlined, there are different conditions which explain the deductions on corporate tax, there are some conditions where deductions may not be done. The two main objectives of Corporate Tax Deductions are as follows. 

• Ensuring the expenses that are incurred in a reasonable and justified manner are not for any personal use or for extravagant purposes.  
• For preventing any potential abuse or fraudulent claims.  

What expenses are Partially Disallowed for Deductions? 

The expenses on which deductions are applied but under some conditions are as follows.  

• Net Interest Expenditure (NIE): According to the UAE CT Law, net interest expense (NIE) is deductible up to 30% of tax-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). NIE is calculated as net interest expense less net interest income. If the NIE for the applicable tax period is less than the AED 12 million level, this should not be the case. The taxable person may deduct 30% of EBITDA or the higher of the threshold if it is surpassed. 
• Entertainment Expenditure: It is the expenditure on activities like meals, transportation, admission fee, meals etc. It is basically for the customers, shareholders, suppliers and other business partners. The Fraction decided by the Cabinet decision is that such expenditures can be deducted up to 50% only.  

What are the Disallowed Expenses?  

These are the expenses which are totally excluded from any deductions on the expenditure. These are as follows.  

• Donations – paid to the qualified public benefit entity.  
• Personal expenses – refers to any expenses that are non-business expenses. 
• Taxes that are not imposed in the vicinity of UAE.  
• Any payment taken for bribe purposes or any illegal payment for any reason. 
• Dividend or distributed profit.  
• Penalties or fines for any reason.  
• Exempt income, any sort of payment explained by the FTA as exempt.  
• Capital in Nature.  

What will be the Key Takeaway?  

• Assessing whether the expenses under consideration are recognized correctly to avoid any adjustments of the taxable income during the assessment process.  
• If the entertainment expenditure is incurred on behalf of the employees, it will be 100% deductible if it will be provided to enable employees to perform their duties. 
• Assessing if the expenses are accurately bifurcated to the non-business and business activities.  
• It is advised for the companies to maintain proper documents for demonstrating such expenses that are related to the business.  

Conclusion:  

It is advised that you hire Corporate Tax Consultants in Dubai as they provide important insights regarding the new tax law. ebs Chartered Accountants is a team of well-trained professionals to help you with your corporate tax needs. The team at ebs is available at all the times and they are fully aware of any revisions and updates in the corporate tax. If you are unable to hire a consultant, you can get help from a new platform known as uaetaxgpt which has made it very easy for the understanding of corporate tax needs, it is the best way to get accurate answers within seconds. It is very important that you are aware of all aspects of Corporate Tax, which is why research is important, Corporate Taxation website will help you with your research insights.  

FAQs  

What is the corporate tax in Dubai? 

All businesses having annual taxable profit of more than AED 375,000 fall under the 9% taxation rate regime. If the business is in Dubai and is not exceeding the set net profit amount, then the payable tax will be zero. 

Who is eligible for corporate tax in UAE?  

Corporate tax is basically applied to all businesses and individuals conducting business activities under a commercial license in the UAE. The timeline and some pointers may differ depending upon the revenue being generated by the company.   

What are the tax deductions in UAE? 

The UAE CT Law provides that net interest expense (NIE) {Net Interest expense less Net Interest Income} up to 30% of tax adjusted earnings before interest taxes depreciation and amortization (EBITDA) will be deductible. 

What are the tax-deductible expenses for a corporation? 

The IRS defines allowable business deductions as costs that are “ordinary and necessary” for the industry in which the business operates. The main deductible categories are direct expenses, indirect expenses, and interest on debt.