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A taxable person can get some deductions on his income during a tax period provided he meets the requirements as directed in the corporate tax law by the Authority.
A deduction is an amount that can be deducted from the taxable income during the tax liability calculation phase. This decreases how much tax the taxable person owes to the government. Note that tax deductions fall under legal incentives and have been provided by the law. The UAE corporate law’s article 28 examines deductible expenditure.
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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 the general interest deduction, by deducting a maximum of 30% of their earnings before EBITDA. This deduction will be done as net interest expenditure.
The net interest expenditure is calculated by subtracting taxable interest income received by the taxable person from the interest expenditure during the tax period. The taxable interest income should also include the amount of net interest expenditure that has been carried forward from earlier.
Note that you should not include disallowed interest expenditure as per the UAE corporate tax provisions.
A taxable person can deduct up to a maximum of 30% of their net interest expenditure from their EBITDA for the tax period specified. This excludes the exempt income as specified in the UAE corporate tax law’s article 22.
The general interest deduction limitation rule will not apply if the taxable person’s net interest expenditure for the particular tax period is within the threshold outlined by the Minister.
It is possible to carry forward disallowed net interest expenditure during deduction in the next 10 tax periods. You must ensure the order is followed during the carry-forward process.
Claiming deductions does not apply to an insurance provider, a bank, a natural person who is conducting business activities inside the state, and anyone else who is specified by the Minister.
Anyone who comes under this category is required to get all his financial statements consolidated as per the accounting standards. The Minister can decide if such a taxable person applies to the net interest expenditure deduction or not.
The UAE corporate tax law has some provisions for interest expenditure deductions by a taxable person who has obtained a loan from a related party.
If a taxable person has obtained any loan from a related party and any of the following is true, then he is not eligible for a deduction on interest expenditure.
As per the corporate tax law, if the taxable person is involved in any of the above but shows proof that he did not do it to gain a corporate tax advantage, he may be allowed deductions in interest expenditure. Moreover, in the case that it falls in a foreign jurisdiction at a rate of 9%, it will not fall under the corporate tax advantage as per the law.
The entertainment expenditure involves all the expenses incurred when entertaining the taxable person’s suppliers, clients, etc. It includes expenses such as transportation, meals, facilities, accommodation, equipment, admission fees, and anything else specified as an entertainment expense by the Minister.
A taxable person can claim a deduction of up to 50% for entertainment expenditures during a tax period. The person can claim it for amusement, entertainment, or recreation during the relevant tax period. This has been specified per article 28 of the UAE corporate tax law, which delves into the deductible expenditure specifics.
Non-deductible expenditures are those where deductions on a taxable person’s income are not allowed as per the UAE corporate tax law. Article 33 of the UAE corporate tax law outlines transactions that are considered a non-deductible expenditure. The following transactions cannot be used to claim any type of deductions for a taxable person.
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