Article 33 – Case Scenarios
Illustration 1: M/s. ABC Limited has been penalised amounting to Rs. 50,000/- as Penalty for late filing of returns and Penal Interest on tax submitted late. Whether the penalty will be allowed as Deduction?
Answer: As per the Provisions of Article 33(Non-Deductible Expenditure) of UAE- Corporate Law, Fines and penalties, other than amounts awarded as compensation for damages or breach of Contract are not allowed as deductions. Therefore, the penalty will not be allowed as Deduction.
Illustration 2: A penalty has been levied on an assessee for purchasing goods for specified purpose on concessional tax rate of @1% (normal rate @4%) and not utilise the same for the purpose for which it was bought. This penalty or fine has been levied for breach of contract for utilisation goods other than specified purpose. Whether the same will be allowed as Deduction?
Answer: Yes, the penalty levied for the breach of Contract will be allowed as Deduction because Fines and penalties, other than amounts awarded as compensation for damages or breach of Contract are not allowed as deductions as per the Provisions of Article 33(Non-Deductible Expenditure) of UAE- Corporate Law.
Illustration 3: M/s XYZ Ltd. engaged in Textile business has earned a net profit of AED 50,000. A Corporate Tax of 9% on Net profit is applicable. The company is allowed a Maximum deduction of AED 5,000. Whether the Corporate Tax will be allowed as Deduction?
Answer: As per the provisions of Article 33(Non-Deductible Expenditure) of UAE- Corporate Law, Corporate Tax levied by the UAE Corporate Tax Law on a Taxable Person is not allowed as deduction. Therefore, Corporate Law levied on M/s XYZ Ltd will not be allowed as Deduction.
Illustration 4:
M/s ABC Private Limited gives 22,000(AED) to Emirates Charity portal as Donation. Whether the donation will be allowed as deduction or not?
Answer:
As per the provision mentioned in Article 33(Non- Deductible Expenditure) of UAE- Corporate law, Donations given to the public benefit entity is excluded from Article 33. However, it is pertinent to mention the definition of Public Benefit entity:
Public benefit entities are defined as ‘reporting entities whose primary objective is to provide goods or services for the general public or social benefit and where any risk capital has been provided with a view to supporting that primary objective rather than with a view to a financial return to equity shareholders’.
For Example: Charitable Institutions, Societies etc.
Therefore, M/s ABC Private limited is eligible to claim deduction under Corporate Tax UAE Law.
Illustration 5: M/s. XYZ Limited a pharmaceutical company provides free medical kits to the medical practitioners amounting Rs.50000 if they are able to meet given sales target .Whether the same will be allowed as deduction or not?
Solution: As per the provisions of Article 33 (Non – Deductible Expenditure) of UAE-Corporate Law, Bribes, illegal payments or any other modes employed for corruption as not allowed as deduction. As per the given case above, free medical kits are in terms of bribe, Therefore, M/s. XYZ Limited will not allowed deduction of Rs. 50000.
Illustration 6: M/s.PQR Limited declared dividend to its shareholders @10% out of its net profit. Now company want to claim deduction for the same. Whether the same will be allowed as deduction?
Solution: As per the provisions of Article 33 (Non-Deductible Expenditure ) of UAE –Corporate Law ,payment made in the form of dividend is not allowed as deduction. Therefore , M/s. PQR Limited will not be able to avail deduction.
Illustration 7: The Gift Company engaged in the business of selling gifts. On the occasion of inauguration of new shop The company distributes few samples to its customers Whether these expenses will be allowed as Deduction?
Answer : As per the Provision of Article 33 (Non- deductible Expenditure ) of UAE Corporate law , Donations, grants, or gifts given to a corporate entity that is not a Qualifying Public Benefit Entity are not allowed as deductions. Hence Freebies given by Gift Company to its customers are disallowed.
Illustration 8: XYZ & Co having Income from Business & Profession Rs 10 Lakhs which includes dividend Income (juridical person) 2,00,000 . Total expenditure made to earn the income is 300000 out of which 10,000 pertains to dividend Income. How much deduction is allowed under Article 28?
Ans As per the provisions of Article 22 “Exempt Income”
The following income and related expenditure shall not be taken into account in determining the Taxable Income:
- Dividends and other profit distributions received from a juridical person that is a Resident Person.
As per the provisions of Article 28 “Expenditure Income in deriving exempt Income”. The Expenditure of Rs10000 is incurred to earn the dividend income which is exempt hence same is not allowed as deduction.
Total deduction to be allowed is 2,90,000
Illustration 9:
Mr. A, a partner in M/s. PQR & Associates (an Unincorporated Partnership Firm in UAE) has withdrawn an amount of AED 50,000 from his business. Whether this withdrawal will be allowed as Deduction?
Answer:
As per the Clause 5 of Article 33 (Non-Deductible Expenditure) of UAE Corporate Law, “sums that a natural person who is a Taxable Person as defined in Clause 3 of Article 11 of the UAE Corporate Tax Law or a partner in an Unincorporated Partnership withdraws from the business” are barred from being claimed as deduction. Therefore, the amount of AED 50,000 withdrawn by Mr. A from his business will not be allowed as Deduction & tax will be calculated on the net income plus AED 50,000.
Illustration 10:
Mr. X paid AED 150,000 as Value Added Tax in respect of Goods and Services which are used for making taxable supplies. Whether this amount of tax will be allowed as Deduction?
Answer:
As per the Clause 7 of Article 33 (Non-Deductible Expenditure) of UAE Corporate Law, “Input Value Added Tax paid by a Taxable Person and eligible for reimbursement under the Federal Decree-Law No. (8) of 2017 mentioned in the preamble.” is not allowed as deduction. Hence, the sum of AED 150,000 will not be treated as deductible expense.
