FAQs Article 33: Non-deductible exxpenditure
Source: https://mof.gov.ae/corporate-tax-faq/
- What expenditure will be deductible for the purposes of calculating taxable income?
In principle, all legitimate business expenses incurred to derive taxable income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognised by way of depreciation or amortisation deductions over the economic life of the asset or benefit.
Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as incurred wholly and exclusively for the purpose of the taxable person’s business.
- What expenditure will be non-deductible for the purposes of calculating taxable income?
Article 33 of the UAE Corporate Tax Law lists certain specific expenses for which no deduction will be allowed, such as bribes, fines and penalties, and no deduction is available for expenditure incurred in deriving income that is exempt from CT or losses that are not connected with or arising out of a taxpayer’s business. Additionally, certain restrictions may apply to the deduction of interest expenditure (see question 92, Will my interest expenditure be fully deductible?).
- Will my interest expenditure be fully deductible?
The Corporate Tax Law provides for certain restrictions on the deductibility of interest expenditure to discourage excessive debt financing, and to ensure that debt financing used or arising as a result of certain specific intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan.
General interest deduction limitation rule
Businesses with net interest expenditure above a threshold to be set by the Minister will be allowed to deduct net interest expenditure up to 30% of their earnings before interest, tax, depreciation and amortisation (EBITDA), excluding any exempt income. Any net interest expenditure which exceeds this limit may be carried forward and utilised in the subsequent 10 tax periods.
Businesses with net interest expenditure below the threshold to be set by the Minister will not be subject to the general interest deduction limitation rule.
The general interest deduction limitation rule will not apply to banks and other finance institutions, insurance providers or individuals.
Specific interest deduction limitation rule
Where a loan is obtained from a Related Party and is used to finance income that is exempt from CT, the interest on the Related Party loan will not be deductible unless the taxpayer can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a CT advantage.
- Will dividends paid by UAE companies be deductible for CT purposes?
Dividends paid by UAE companies will not be deductible for CT purposes.
- Will service fees paid to local and Federal Governments be deductible for UAE CT?
Business set up, licence renewal and other Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible for CT purposes.
- Will Value Added Tax paid be deductible for UAE CT?
Only irrecoverable input Value Added Tax may be deductible for CT purposes. Otherwise, Value Added Tax charged and Value Added Tax incurred would not impact the calculation of taxable income.
