UAE Corporate Tax FAQs: What are the deductible expenses, who can claim the deduction, how to claim the deduction, which expenses are non-deductible, what is a QPBE?
Which expenses can be deducted for deriving the Taxable Income for the purpose of UAE Corporate Tax?
Generally, all business-related expenses can be deducted during the relevant tax period in order to calculate the taxable income. However, the tax authorities may make certain adjustments to the accounting profit to derive the taxable income. This involves disallowing certain expenses.
Expenditure that includes a combination of both personal and business nature should be apportioned and that part of the expenses incurred solely for business purposes will be allowed as a deduction for determining the taxable Income.
How do the provisions of Corporate Taxation apply to Entertainment Expenditures?
Entertainment expenses are those expenses incurred with respect to providing food, drink, or other forms of entertainment to customers, suppliers, or other business partners. Generally, these expenses would also include a certain degree of self-consumption. Therefore in order to simplify the administrative process associated with apportioning the expenses, the Corporate Tax Law has prescribed that entities can deduct up to 50% of the amount incurred while calculating the Taxable Income during the relevant Tax Period.
For example, A Ltd incurs AED 12,000 as entertainment expenses during the tax period ending 31st December 2024. The firm can deduct only 6,000 for deriving the taxable income.
Further, the Law also requires satisfaction of the following conditions in order to avail of the partial deduction:
- The expense must be incurred entirely and exclusively for the purposes of the business.
- They must be incurred in the course of business with customers, suppliers, or other business partners.
Examples of entertainment expenses that may be deductible include:
* The cost of meals, drinks, and other refreshments provided to customers or clients at a business meeting.
* The cost of accommodation, transportation, and admission fees to customers or clients as a form of entertainment.
* The cost associated with the use of facilities and equipment used in connection with such entertainment, amusement, or recreation.
The explanatory guide on the UAE Corporate Tax issued by the Ministry of Finance (MoF) has clarified that the deductibility limitation rule does not apply to expenses incurred for staff entertainment and therefore such expenses are fully deductible.
Who Can Claim the Deduction?
The deduction for entertainment expenses can be claimed by any taxable person, including individuals, partnerships, and corporations.
How to Claim the Deduction?
To claim the deduction for entertainment expenses, the taxable person must keep proper records of the expenses, including receipts, invoices, and other supporting documents. The taxable person must also be able to demonstrate that the expenses were incurred wholly and exclusively for the purposes of the business.
Which expenses are considered as Non- deductible for corporate tax purposes?
No deduction is allowed for the following expenses-
- Activities outside the Taxable Person’s business
- Expenditure incurred in connection with deriving exempt income
- Losses not connected with the business of the Taxable Person
- Donations, grants, or gifts made to an entity that is not a qualifying public benefit entity
- Fines, penalties, and other amounts awarded as compensation for damages or breach of contract.
- Bribes or illicit payments
- Dividends, or other profit distributions paid to an owner of the taxable person
- Recoverable input VAT and payments for Corporate Tax or other taxes on income imposed by authorities outside UAE
What is a Qualifying Public Benefit Entity (QPBE)?
- An entity established and operated for any of the following:
- exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other related purposes.
- A professional entity, chamber of commerce or entity of similar nature operated exclusively for the promotion of social welfare or public benefit.
2.Does not conduct business or business activity other than those directly related to fulfilling the purpose of its establishment
3.No part of its income or assets is payable to or otherwise available for the personal benefit of any shareholder, member, trustee, founder, or settlor that is not itself a QPBE, Govt Entity or Govt Controlled entity.
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