UAE Corporate Tax – Deductions

Frequently Asked Questions

All valid business expenses that contribute to taxable income can be deducted, although the timing of the deduction may differ for various expenditures and accounting methods. Capital asset expenditures are typically recognized through depreciation or amortization deductions over the asset’s economic life or benefit. Expenses that serve a dual purpose, such as personal and business expenses, must be divided, and the relevant amount must be treated as exclusively incurred for business purposes.

Article 33 of the UAE Corporate Tax Law specifies specific expenses for which no deduction will be allowed, such as bribes, fines, and penalties, and no deduction is available for spending incurred in deriving CT-exempt income or losses that are unrelated to or arising from a taxpayer’s business. Furthermore, some limitations may apply to the deduction of interest expense (see the question ‘Will my interest expenditure be completely deductible?’ under the section Deductions).

The Corporate Tax Law imposes 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 specific intra-group transactions is only deductible if a valid commercial reason is there for obtaining a loan.

  • General interest deduction restriction rule:

Businesses that have net interest expenditures that are above a threshold determined by the Minister will be able to deduct net interest expenditures up to 30% of their earnings before interest, tax, depreciation, and amortization (EBITDA), excluding any exempt revenue.

Any net interest expense that exceeds this amount may be carried forward and used in the next ten tax periods. Businesses having net interest expenditures less than the Minister’s level will be exempt from the general interest deduction restriction regulation. Banks and other financial institutions, insurance providers, and individuals will be exempt from the general interest deduction restriction regulation.

  • Specific interest deduction limitation rule:

If a Related Party loan is acquired to finance an income that is exempt from CT, the interest on the loan cannot be deducted unless the taxpayer can prove that the primary intention behind obtaining the loan and conducting the transaction was not to achieve a CT benefit.

UAE-based businesses’ dividend payments won’t qualify as CT deductions.

Deductions for CT purposes include startup costs, license renewal fees, and other government fees and expenses incurred entirely and solely in the regular course of business.

For CT purposes, only irrecoverable input VAT may be deducted. Otherwise, neither the value-added tax paid nor the value-added tax charged would affect how much money is taxed.

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