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Deductible expenditure: general rule

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-DED-2024.1
By

Which expenses are deductible for UAE Corporate Tax?

Expenditure incurred wholly and exclusively for the business and not capital in nature, in the period incurred. A mixed-purpose cost is apportioned fairly.

Per Federal Decree-Law No. 47 of 2022, Article 28, Deductible Expenditure

Expenditure incurred wholly and exclusively for the purposes of the Taxable Person's Business that is not capital in nature is deductible in the Tax Period in which it is incurred, subject to the rest of the Decree-Law. No deduction is allowed for expenditure not incurred for those purposes, expenditure incurred in deriving Exempt Income, losses not connected with the Business, or anything the Cabinet specifies. Where expenditure serves more than one purpose, the identifiable part incurred wholly and exclusively for deriving Taxable Income is deductible, as is an appropriate proportion of any unidentifiable part determined on a fair and reasonable basis.

The general rule every other deduction sits under. Interest is expressly carved back in by Article 29 and then limited by Articles 30 and 31; entertainment is restricted by Article 32; Article 33 blocks a further list outright.

The general rule and its exclusions

Article 28 is principle, prohibition and apportionment, in that order — and the order is how the rule tests them.

28(1) — what is deductible

  • Incurred wholly and exclusively for the purposes of the Taxable Person's Business
  • Not capital in nature
  • Deductible in the Tax Period in which it is incurred
  • Subject to the provisions of the Decree-Law — which is where Articles 29 to 33 bite

28(2) — for which no deduction is allowed

  • (a) Expenditure not incurred for the purposes of the Taxable Person's Business
  • (b) Expenditure incurred in deriving Exempt Income
  • (c) Losses not connected with or arising out of the Taxable Person's Business
  • (d) Such other expenditure as may be specified in a decision issued by the Cabinet at the suggestion of the Minister

28(3) — expenditure incurred for more than one purpose

No percentage is prescribed. The article gives a basis, not a figure.

  • (a) Any identifiable part or proportion incurred wholly and exclusively for the purposes of deriving Taxable Income
  • (b) An appropriate proportion of any unidentifiable part, determined on a fair and reasonable basis having regard to the relevant facts and circumstances of the Business

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. The apportionment is asked for only where there is more than one purpose to apportion between.

  2. 2

    Capital in nature

    Tested before purpose. Capital expenditure incurred wholly and exclusively for the Business is still outside the deduction this article gives, and reporting purpose as the reason would be the right answer with the wrong reason.

  3. 3

    Expenditure for which no deduction is allowed

    Tested before the apportionment. An item incurred in deriving Exempt Income is blocked whether or not it also serves a taxable purpose, so apportioning it would be a deduction the article does not give.

  4. 4

    Wholly and exclusively for the Business

    Deductible in full, in the period incurred.

  5. 5

    Expenditure incurred for more than one purpose

    The identifiable part, or an appropriate proportion of the unidentifiable part on a fair and reasonable basis. The proportion is your determination; the rule carries it as one.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Ordinary trading expenditure

A consultancy incurs AED 850,000 of staff and office costs, wholly for its business, none of it capital.

Computed

The expenditure of AED 850,000 is deductible in the period as computed: Article 28(1) allows expenditure incurred wholly and exclusively for the purposes of the Business that is not capital in nature, and none of the Article 28(2) categories applies, based on the figures you supplied.

Workings

Expenditure incurredas supplied
AED 850,000
Deductible in the periodArticle 28(1) — wholly and exclusively for the purposes of the Business
AED 850,000

Decided by the wholly and exclusively for the business

A vehicle used partly privately

Running costs of AED 120,000 on a vehicle used for both business and private journeys. The owner determines, on a fair and reasonable basis from the mileage log, that AED 78,000 relates to deriving Taxable Income.

Computed

Of the expenditure of AED 120,000, AED 78,000 is deductible in the period as computed, per Article 28(3): the part or proportion incurred for the purposes of deriving Taxable Income. That proportion is your determination on a fair and reasonable basis, not a figure this rule computed — Article 28(3) prescribes no percentage.

Workings

Expenditure incurredas supplied
AED 120,000
Part or proportion for deriving Taxable IncomeArticle 28(3) — your determination on a fair and reasonable basis
AED 78,000
Deductible in the periodArticle 28(3)(a)–(b) — the identifiable part, or an appropriate proportion
AED 78,000
Not deductiblethe balance, as not incurred for the purposes of deriving Taxable Income
AED 42,000

Decided by the expenditure incurred for more than one purpose

Costs of managing an exempt shareholding

AED 200,000 of advisory fees incurred in deriving dividend income that is Exempt Income under Article 22.

Computed

No deduction for the expenditure of AED 200,000 as computed: Article 28(2)(b) — expenditure incurred in deriving Exempt Income, based on the figures you supplied.

Workings

Expenditure incurredas supplied
AED 200,000
Deductible in the periodnil — no deduction allowed under Article 28
AED 0

Decided by the expenditure for which no deduction is allowed

Capital expenditure, wholly for the business

AED 3,000,000 spent on plant for the production line — incurred wholly and exclusively for the business, and capital in nature.

Computed

No deduction for the expenditure of AED 3,000,000 as computed: Article 28(1) allows a deduction for expenditure that is not capital in nature, and you have indicated this expenditure is capital. Whether relief is available elsewhere requires your determination, based on the figures you supplied.

Workings

Expenditure incurredas supplied
AED 3,000,000
Deductible in the periodnil — no deduction allowed under Article 28
AED 0

Decided by the capital in nature

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

4 inputs still need your determination:

  • What is the expenditure incurred in the period?
  • Is the expenditure capital in nature?
  • Does the expenditure fall within any of the Article 28(2) categories for which no deduction is allowed?
  • Was the expenditure incurred wholly and exclusively for the purposes of the Business, or for more than one purpose?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader