Page 7 - ICAI UAE TAX UPDATE_AUGUST 2024

other measurable and reasonable basis. The allocation treated as Taxable Income for Corporate Tax purposes.
key chosen must be logical and must fairly represent
the benefit that the expense generates for each income • The following are other non deductibe expenses:
component and also be used consistently for each Tax • Donation or Zakat, grant or gift made to an organisation
Period that is not a Qualifying Public Benefit Entity
• Fines and penalties, other than amounts awarded as
• Payments or benefits provided by a Taxable Person to compensation for damages or breach of contract
its Related Parties and/or Connected Persons would be • Bribes or other illicit payments
deductible only to the extent that the payment or benefit • Corporate Tax & recoverable input Value Added Tax
corresponds with the Market Value of the service or • Dividends, profit distributions & amounts withdrawn
benefit provided. from the Business by a natural person subjected to
Corporate Tax.
• Capital expenditure is not deductible when determining • Tax on income imposed outside the UAE
Taxable Income. This is in contrast to revenue • Contributions made by employers to a private pension
expenditure, which supports the day-to-day operations fund in respect of its employees which are not paid in
of the Business. the Tax Period or are in excess of 15% of the employee’s
total remuneration in the relevant Tax Period.
While capital expenditure is not deductible, when • Local taxes that are not in the nature of Corporate Tax,
determining Taxable Income, the depreciation of the cost such as municipal and property taxes, will be deductible
of capital assets is a deductible expense for Corporate However, a tax under an Emirate Law, such as that paid
Tax purposes. by branches of foreign banks in the UAE is not allowed
as a deduction
Article 7 of Ministerial Decision No. 134 of 2023 states • 50% deduction for entertainment expenditure is
that the depreciation/ amortisation charge which relates allowed for Corporate Tax purposes. Where a Taxable
to such non-deductible expenditure will also not be Person provides commercial hospitality as part of their
allowed as a deduction for the purpose of determining Business or Business Activity, such expenditure would
Taxable Income. not be considered as entertainment expenditure.
The 50% deduction rule does not apply to other
• Certain expenditure may be incurred before the marketing expenditure, such as advertising, online
Business is officially incorporated, which are typically promotion, attending trade shows or direct marketing
associated with the process of setting up a Business. campaigns, which is deductible in line with the general
Any such expenditure incurred wholly and exclusively principles of the Corporate Tax Law. Sponsorship costs
for the Business that is not capital in nature would be (for example, sponsoring an event) will be deductible
allowed as a deduction. where such costs are incurred for marketing purposes.
However, to the extent that benefits are received as part
A Taxable Person may also incur pre-trading expenses of that sponsorship (for example, tickets to a sporting
i.e. expenditure incurred after a Business is incorporated event) and the benefits are used to entertain business
or set-up, but before it starts generating revenue or partners and/or customers
conducting its normal trading operations. Where such Any expense incurred which is incidental to a Business
pre-trading expenditure is recorded as an expense in the purpose shall not be considered as entertainment
Financial Statements, it will be allowed as a deduction in expenditure.
the Tax Period when it is incurred, subject to meeting the
general deduction criteria under the Corporate Tax Law C. Other Adjustments
General Interest Deduction Limitation Rule
• If a Taxable Person records a provision in its Financial A Taxable Person’s Net Interest Expenditure is subject
Statements in accordance with the relevant Accounting to the General Interest Deduction Limitation Rule. The
Standards, the provision will be allowed as a deduction. Net Interest Expenditure is the difference between
If such a provision is released or reversed in a subsequent the amount of Interest expenditure incurred and the
Tax Period, there are no specific adjustments required to Interest income derived during a Tax Period. Where
be made to the release or reversal. In instances where the Net Interest Expenditure exceeds AED 12 million
a provision was recorded before a Taxable Person’s first in a Tax Period, the amount of deductible Net Interest
Tax Period and then reversed after the Person becomes Expenditure is the greater of:
subject to Corporate Tax, the reversal is taxable when the
credit is recorded in the Financial Statements. Therefore, • 30% of adjusted EBITDA (earnings before the deduction
the relevant credit to the Financial Statements will be of Interest, tax, depreciation and amortisation)
www.icaidubai.org 7

UAE TAX UPDATE NEWSLETTER ISSUE 05 - August 2024 ISSUE 05 - August 2024 UAE TAX UPDATE NEWSLETTER