Understanding Deductible Expenditures Under UAE Corporate Tax Law

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Understanding Deductible Expenditures Under UAE Corporate Tax Law

Understanding the UAE’s newly introduced Corporate Tax Law seems challenging for most businesses. If the tax year of your business starts from January 2024, you also need to set aside the taxable income from this month. It is because of the corporate tax announcement in the middle of the year, June 1st, 2023.

 

However, understanding the deductible expenditures is essential to reduce the taxable income.

 

These expenses are incurred within the tax period but are deducted from the taxable income, as mentioned in Article 28. Let's dive deep into this crucial aspect of corporate tax in UAE:


1. The Basics of Deductible Expenditure


Under the new law, expenses incurred wholly and exclusively for the purpose of your business and which are not capital in nature are deductible. This means that any expense directly related to the day-to-day running of your business can potentially reduce your taxable income. However, it's essential to note that these expenses must be incurred within the tax period they are claimed.


2. What Cannot Be Deducted?


There are specific expenditures for which no deduction is allowed:


       Expenses not incurred for your business purposes.

       Expenses incurred in earning exempt income.

       Losses that are not connected to or arising from your business activities.

       Any other expenditures that the Cabinet may specify based on the Minister's suggestion.


It's crucial for businesses to carefully consider these restrictions to ensure compliance and avoid potential issues with tax authorities.


3. Dealing with Mixed-Use Expenditures


In cases where an expense serves more than one purpose (business and personal), the law provides a way to claim deductions:


You can deduct an identifiable part or proportion of the expense incurred solely for business purposes.

 

For expenses not clearly identifiable as business-only, a fair and reasonable proportion, based on the relevant facts and circumstances of your business, can be claimed.


This aspect of the law requires careful documentation and justification to ensure that the claimed deductions are justifiable and in line with the law's requirements.


Key Takeaways for Your Business


Documentation is Key: Maintain detailed records of all expenditures to justify the deductions claimed.


Understand the Restrictions: Be aware of what cannot be deducted and plan your financial strategies accordingly.


Seek Professional Advice: Given the complexities, especially around mixed-use expenditures, consulting with tax professionals is highly recommended.


The aforementioned details provide a basic overview of the deductible expenditures in the UAE’s Corporate Tax Law. Based on the unique circumstances of each business, the conditions may vary. Therefore, getting personalized advice is important for every business.


Feel free to contact Virtegrated Minds for Corporate Tax matters. Get consultation from our certified tax experts to maximize deductible expenditure. Also, stay tuned as we will keep sharing more tips in our future blog posts to help you understand Corporate Tax in detail.


Please note that the above information should not be considered legal or financial advice. The sole purpose of the blog post is to help you understand the basics of Corporate Tax. For detailed consultancy, always seek professional advice.

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