Non-deductible expenditure
- Applies
- FY2024 onwards
- Reviewed
- Rule
- UAE-CT-NONDED-2024.1
Which expenses are not deductible for UAE Corporate Tax?
Fines, bribes, dividends to owners, gifts to non-qualifying bodies, Corporate Tax itself, recoverable input VAT and tax on income imposed abroad.
Per Federal Decree-Law No. 47 of 2022, Article 33, Non-deductible Expenditure
No deduction is allowed for donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity; fines and penalties other than amounts awarded as compensation for damages or breach of contract; bribes or other illicit payments; dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person; amounts withdrawn from the Business by a natural person who is a Taxable Person or by a partner in an Unincorporated Partnership; Corporate Tax imposed under this Decree-Law; recoverable input Value Added Tax; tax on income imposed outside the State; and anything the Cabinet specifies.
A flat list with no proportion, no condition and no relieving limb. Where an amount is within a category, the disallowance is the whole of it. Where it is not, this article decides nothing either way and Article 28 does.
The list
Article 33 in the article's own order. Two items carry a qualification that is easy to drop, and both are noted below.
No deduction is allowed for
- (1) Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity
- (2) Fines and penalties, other than amounts awarded as compensation for damages or breach of contract
- (3) Bribes or other illicit payments
- (4) Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person
- (5) Amounts withdrawn from the Business by a natural person who is a Taxable Person under Article 11(3)(c), or a partner in an Unincorporated Partnership
- (6) Corporate Tax imposed on a Taxable Person under this Decree-Law
- (7) Input Value Added Tax incurred that is recoverable under the Value Added Tax legislation
- (8) Tax on income imposed on the Taxable Person outside the State
- (9) Such other expenditure as specified in a decision issued by the Cabinet at the suggestion of the Minister
Item (1) is a test about the recipient, not about donations
The disallowance bites where the recipient is not a Qualifying Public Benefit Entity. Reading it as "donations are not deductible" would be wrong in the one direction that costs a reader money.
Item (2) expressly spares compensation
Amounts awarded as compensation for damages or breach of contract are outside the fines and penalties item. A rule that blocked all fines and penalties would disallow a contractual damages payment the article does not disallow — so compensation is a category a reader can select, and selecting it is not a disallowance.
Item (7) turns on recoverability, not on incurrence
It is recoverable input VAT that is blocked. Irrecoverable input VAT is not within this item.
Order of testing
- 1
Inputs requiring your determination
Any input a person must decide and has not decided stops the computation. An undecided input is never read as a no.
- 2
Compensation for damages or breach of contract
Tested as its own category, because Article 33(2) expressly spares it. The amount is not blocked by this article, and whether it is deductible is Article 28's question.
- 3
Outside the Article 33 list
Where the amount is within none of the categories, this article decides nothing either way.
- 4
Expenditure for which no deduction is allowed
Within a category, the disallowance is the whole amount. The article allows no proportion and admits no condition, and the result names which item decided it.
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.
A late-filing penalty
An administrative penalty of AED 10,000 imposed for a late return.
Computed
No deduction for the amount of AED 10,000 as computed: Article 33(2) — a fine or penalty. Article 33 allows no proportion and admits no condition, so the disallowance is the whole amount.
Workings
- Amountas supplied
- AED 10,000
- DeductibleArticle 33(2) — a fine or penalty
- AED 0
Decided by the expenditure for which no deduction is allowed
Damages paid on a contract dispute
AED 450,000 awarded against the company as compensation for breach of a supply contract — expressly outside the fines and penalties item.
Computed
Article 33 does not block the amount of AED 450,000 as computed: Article 33(2) blocks fines and penalties other than amounts awarded as compensation for damages or breach of contract, and you have indicated this is such an amount. Whether it is deductible is decided by Article 28.
Workings
- Amountas supplied
- AED 450,000
- Disallowed by Article 33Article 33(2) — expressly outside the fines and penalties item
- AED 0
Decided by the compensation for damages or breach of contract
Sponsorship of a body that is not a Qualifying Public Benefit Entity
A donation of AED 200,000 to an organisation that is not a Qualifying Public Benefit Entity.
Computed
No deduction for the amount of AED 200,000 as computed: Article 33(1) — a donation, grant or gift made to an entity that is not a Qualifying Public Benefit Entity. Article 33 allows no proportion and admits no condition, so the disallowance is the whole amount.
Workings
- Amountas supplied
- AED 200,000
- DeductibleArticle 33(1) — a donation, grant or gift made to an entity that is not a Qualifying Public Benefit Entity
- AED 0
Decided by the expenditure for which no deduction is allowed
Foreign tax on income
AED 620,000 of income tax paid in another jurisdiction. Not deductible — though a foreign tax credit may be available under Article 47, which is a different question.
Computed
No deduction for the amount of AED 620,000 as computed: Article 33(8) — tax on income imposed outside the State. Article 33 allows no proportion and admits no condition, so the disallowance is the whole amount.
Workings
- Amountas supplied
- AED 620,000
- DeductibleArticle 33(8) — tax on income imposed outside the State
- AED 0
Decided by the expenditure for which no deduction is allowed
Ordinary trading expenditure
AED 75,000 of professional fees, within none of the Article 33 categories.
Computed
Article 33 does not block the amount of AED 75,000 as computed: you have indicated it falls within none of the article's categories. Whether it is deductible is decided by Article 28 and whatever else applies to it.
Workings
- Amountas supplied
- AED 75,000
- Disallowed by Article 33nil — outside the Article 33 list, so no disallowance under this article
- AED 0
Decided by the outside the article 33 list
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
2 inputs still need your determination:
- What is the amount of the expenditure?
- Which of the Article 33 categories does the expenditure fall within, if any? An amount awarded as compensation for damages or breach of contract is listed separately, because it is expressly outside the fines and penalties item.
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
Federal Decree-Law No. 47 of 2022, Article 33 — Non-deductible Expenditure
The article this rule encodes, in full
https://mof.gov.ae/wp-content/uploads/2022/12/Federal-Decree-Law-No.-47-of-2022-EN.pdf