Deductibility of business expenses

• Deductibility of business expenses: The UAE CT Law permits the deduction of expenses that are not capital in nature and are incurred wholly and exclusively for the purposes of the taxable person's business, subject to some exceptions and restrictions. These include the depreciation and amortization of assets, the interest expenses within the capping rules, and the charitable contributions to qualifying public benefit entities.

  
  

• Interest capping rules: The UAE CT Law restricts the deduction of net interest expense (NIE) to 30% of EBITDA or a threshold of AED 12 million, whichever is higher, unless the taxable person is exempt from this rule. The NIE encompasses various types of financing costs and foreign exchange gains. The NIE that is disallowed for deduction can be carried forward for up to ten tax periods. The interest capping rules do not apply to certain entities and transactions. such as banks, insurance businesses, qualifying infrastructure projects, and historical debt instruments.

  
  

• Non-deductible expenses: The UAE CT Law prohibits the deduction of certain expenses, such as CT. recoverable VAT, taxes imposed outside the UAE, dividends, bribes, fines, penalties, and entertainment expenses above 50% of the amount incurred. These expenses are either considered as not related to the generation of taxable income, or as abusive or excessive.

  
  

• Net operating losses: The UAE CT Law enables the carry forward of tax losses indefinitely, up to 75% of the taxable income in any tax period, unless the taxable person is subject to a change in ownership or business activity. The CT Law also facilitates the transfer of tax losses between group entities under certain conditions, such as having the same financial year and accounting standards, and not being an exempt person or a QFZP. The tax loss relief is not available for losses incurred before the commencement of the CT regime or from an exempt or non-taxable source.

  
  

• Depreciation and amortisation: The UAE CT Law does not specify the tax treatment of depreciation and amortisation of assets. However, it is implied that these expenses are deductible as long as they are not capital in nature and are incurred for the purposes of deriving taxable income. The taxable person should use a fair and reasonable basis to determine the depreciation and amortisation rates and methods.