What Are the Expenses That Can Be Deducted While Calculating the Corporate Tax in Special Circumstances?
The UAE Government introduced federal Corporate Tax on company profits starting June 1, 2023. Businesses must now know which expenses they can deduct while calculating corporate tax in special circumstances. When the government announced Corporate Tax, it gave companies clear rules about what they can subtract from their taxable profits.
Expenses That Can Be Deducted in Corporate Tax
A business in the UAE can usually deduct any genuine business expense paid only for earning taxable income. But, some expenses are treated in a special way or need to be split up when used both for business and personal reasons. The timing for deducting expenses depends on the expense type and the company’s accounting method.
Some deductible expenses include:
- Depreciation or amortization for capital assets
- Business setup fees, license renewal, and other government charges paid for business activities
- Non-recoverable value-added tax under UAE VAT law
- 50% of client entertainment or leisure costs
- Interest on business loans, but only up to 30% of EBITDA
- Payments to a mainland branch of a Free Zone entity, if related to business
If you spend money for both business and personal reasons, you must split up the expense. Only the business part gets deducted. This makes sure that only company-related costs lower the taxable income.
Interest Expenditure
Interest paid on business loans can be deducted, but only up to a set limit. In the UAE, companies can deduct net interest costs up to 30% of their EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization). This is to stop companies from lowering their profits too much by paying too much interest.
Interest Capping Rules
Let’s say a business has 100 AED in interest payments. Only 30 AED can be deducted for tax purposes. This keeps the deductions fair for every company.
- Loans to related parties can be deducted only if they’re for real business needs. The lender must also pay at least 9% corporate tax.
- Interest on payments to a mainland branch of a Free Zone entity may be deductible, but only if it’s linked to the business.
Deductions for Depreciation & Amortization
Businesses buy assets that lose value over time. The UAE lets you deduct depreciation or amortization for capital assets. This means you can subtract a bit of the cost of equipment, machines, or buildings every year from your income. You must use the right method based on how the asset is used in your business.
Liberation from Capital Gains and Dividend Taxes
In the UAE, most dividends and capital gains from selling shares in subsidiaries are not taxed. Companies in the UAE don’t pay corporate tax on dividends they receive, even if those come from Free Zone businesses. There’s also a corporate tax exemption for capital gains if certain rules are met:
- The UAE shareholder must own at least 5% of the foreign company’s shares.
- The foreign company must have at least a 9% corporate tax rate to qualify for the exemption.
Expenses with Dual Purpose
If you pay for something that helps your business and personal life, you must separate the two parts. Only the business part can be deducted. For example, if you travel for both work and vacation, only the work part counts.
Special Exemptions
- Non-residents who run, lease, or own ships or aircraft for international transport can get exemptions.
- As long as a UAE business gets the same tax benefit in a foreign country, these special rules apply.
Examples of Deductible Expenses
Let’s make it clearer:
- License Renewal Fees: Paid yearly for business operation.
- Office Rent: Rent for business use only.
- Employee Salaries: Wages paid to staff.
- Business Utility Bills: Electricity, water, and internet for office use.
- Business Loan Interest: Up to 30% of EBITDA.
Not All Expenses Are Deductible
Certain costs cannot be deducted, even if related to your business. These include fines, personal expenses, and payments that break the UAE’s tax rules. Always check the guidelines or ask an expert before you claim deductions.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing supports companies with expert advice about corporate tax deductions and special exemptions. Our team checks your business expenses to help you get the most from every deduction while following all the rules. If you ever feel lost in the maze of tax law, remember that every cloud has a silver lining—Mubarak Al Ketbi (MAK) Auditing is here to guide you out!
For more information, visit or contact us:
- Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- WhatsApp/Call: +971 50 276 2132
