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What are the expenses that are not allowed to be deducted from the income under UAE Corporate Tax regime

Following are the expenses that are not allowed to be deducted from the income under UAE Corporate Tax regime. 

The Ministry of Finance (“Ministry”) has not released the final law on the Corporate Taxes as of today yet, however this is extracted from the Public Consultation Document on UAE Corporate Tax released by the Ministry of Finance, UAE and this needs to be re-confirmed with the final law to be issued by the Ministry before taking any decision. 

As the corporate tax needs to be paid on the profit that is derived by deducting the expenses from the income of the business for the taxable period, it is very important to understand the expenses which are allowed to be deducted and the expenses those are not allowed to be deducted. Following is the list of the expenses which are not allowed to be deducted from the income while arriving to the taxable income/ profit:

  • Related party payments from mainland to a Free Zone Person: The related party payments made to a Free Zone Person that is taxed at 0% on receipt of the income will not be deductible for CT purposes. However, the related party will be allowed to claim a deduction if the payment is attributed to a mainland branch of the Free Zone Person. 
  • Entertainment Expenses: Businesses will be allowed to deduct up to 50% of expenditure incurred to entertain customers, shareholders, suppliers and other business partners, to acknowledge that these types of expenses often also have non-business or personal element. 
  • Other expenses: No deduction will be allowed for certain specific other expenses such as 
    • administrative penalties, 
    • recoverable VAT, and 
    • donations paid to an organisation that is not an approved charity or public benefit organisation.

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