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.
Virtegrated Minds - Guiding you through
the complexities of tax compliance.