UAE Corporate Tax Deductions: Key Points to Know
A taxable person can receive deductions on their income during a tax period, provided they meet the requirements outlined in the corporate tax law by the Authority. Deductions are amounts subtracted from taxable income during tax liability calculation, reducing the tax owed to the government. These deductions fall under legal incentives provided by the law, specifically examined in Article 28 of the UAE corporate law.
General Interest Deduction Limitation
The general interest deduction limitation for corporate tax deductions is outlined in Article 30 of the UAE corporate tax law. A taxable person can claim this deduction by subtracting up to 30% of their earnings before EBITDA as net interest expenditure. Net interest expenditure is calculated by subtracting taxable interest income from interest expenditure during the tax period, including carried-forward net interest expenditure. Disallowed interest expenditure should not be included.
Deductions from Net Interest Expenditure
A taxable person can deduct up to 30% of their net interest expenditure from their EBITDA for the specified tax period, excluding exempt income as specified in Article 22. The general interest deduction limitation rule does not apply if the net interest expenditure is within the threshold set by the Minister. Disallowed net interest expenditure can be carried forward for up to 10 tax periods, following the prescribed order.
Non-Applicability of Interest Capping Rules
Interest capping rules do not apply to insurance providers, banks, natural persons conducting business in the state, and others specified by the Minister. Persons associated by ownership or control must consolidate financial statements per accounting standards, with the Minister determining applicability to net interest expenditure deductions.
Specific Interest Deduction Limitation Rule
Provisions exist for interest expense deductions on loans from related parties. If a taxable person has obtained a loan from a related party, deductions are not allowed if profits or dividends are paid, capital contributions occur, shares are transferred, or ownership stakes are purchased, making the lender a related party. Proof must be provided to show no corporate tax advantage was intended, especially if subject to a 9% foreign jurisdiction tax rate.
Entertainment Expenditure
Entertainment expenditure includes costs for entertaining suppliers, clients, and others, such as transportation, meals, accommodation, equipment, and admission fees. A taxable person can claim up to a 50% deduction for entertainment expenditures during a tax period, as specified in Article 28.
Non-Deductible Expenditure
Non-deductible expenditures, outlined in Article 33, include transactions where deductions are not allowed. These include corporate tax levied by UAE law, gifts to non-Qualifying Public Benefit Entities, fines and penalties (excluding contract violations), donations to non-Qualifying Public Benefit Entities, sums withdrawn by natural persons, illegal payments, income tax levied outside the UAE, grants to non-Qualifying Public Benefit Entities, payments to owners like dividends, reimbursable input value-added tax, profit distribution payments, and other expenditures recommended by the Minister.
