Non-Allowable Expenditures for Corporate Tax

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Understanding Non-Deductible Expenses Under Corporate Tax

Even though the UAE has flexible taxation legislation, it strictly follows some particular tax systems. When it comes to Corporate Tax, the UAE exempts certain types of income to avoid double taxation. Non-allowable expenditures are expenses you have to incur while running your firm, but such expenses can’t be claimed for tax deductions.

On the contrary, allowable expenditures for corporate taxation in Dubai are those spent on running your enterprises. Often, individuals new to the Dubai competitive market need to distinguish between allowable and non-allowable expenses. The Flyingcolour Tax consultant will help you clearly understand the two types of expenditures. Know more below.

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What are Non-Allowable Expenditures?

Non-allowable or disallowable expenses are also related to your business finances. However, such costs can’t be claimed as Corporate Tax reductions in the UAE. The simplest way of differentiating between such expenditures and allowable expenditures is to ask whether such charges are solely for the purpose of running a business or for personal benefits!

So, to understand, non-qualified business expenses are meant for personal benefits only, such as clothing, entertainment, loan repayment, penalties, or donations.

Non-Allowable Expenses/ Limitation in allowable expenses for Corporate Tax

These disallowed corporate tax deductions/limitations in allowable expenses are also related to businesses. Such complex association with businesses makes it difficult to distinguish between allowed tax deductions and disallowed expenditures. Here are certain examples of non-allowable/limitations in consideration of allowable expenses:-

1. Repaying Personal Loans

Repayment of loans is often considered among deductible charges. However, personal loan repaying, even if it is associated with helping to run the business, is referred to as disallowed expenses in Dubai.

2. Any Penalties

If personally or any decisions about your business break the government laws then those are considered as disallowable fines. Some examples of fines related to breaking laws are VAT penalties, tax payment delays, parking fines, etc.

3. Entertainment Charges

These non-qualified business expenses include expenditures related to recreational means, such as entertainment and presents, as well as hospitality costs offered to customers, clients, or suppliers. Entertainment expenses are allowed 50% of the actual expenses for UAE Corporate Tax purposes.

4. Clothing

Personal expenses related to clothing or attire are strictly disallowed. However, the law has exceptions for uniforms and official costumes.

5. Donations

If you or your business partners make donations to clubs or charities or invest in political parties, these are also known as disallowed expenses. The Donations made to Qualifying Public Benefit entities are only allowed as expenses for UAE Corporate Tax purposes

Exceptions to Non-allowed Expenditures

While the corporate tax deduction is disallowed for the above types, here’s a glimpse of some of the exceptions for such expenditures as follows-

➢ Travel Expenses

While daily commutes to and from work by business employees do not fall in the allowable tax category, some tax-exempt business expenses pertain to travel visas associated with companies, fueling, business vehicle insurance, servicing, train ticket charges, etc.

➢ Office Costs

Many official charges can be relaxed from corporate charges for running your business. These cover costs, including fax, office phone bills, software, rent, and other related tools and expenditures.

➢ Legal Charges

The corporate tax deduction is disallowed for personal loans and penalties but is deductible in the legal sphere, such as credit card, bank, and overdraft charges. In addition, business-related loans or costs for hiring financial specialists and partnering with experienced consultants like Flyingcolour tax consultants are exempted from some percentage of corporate tax.

➢ Clothing Expenses

While personal clothing costs are part of non-allowed charges, you can benefit from tax-exempt business expensesif spent on uniform or protective clothing. This includes uniforms of cops, entertainers, etc. However, civil clothing is not part of allowable expenses.

➢ Employee Expenses

Employee or worker salary, bonus, or pension can be counted among tax-exempt business expensesIn addition to employee expenses, if your company is conducting any training programs for upgrading the skills of employees, then that becomes a part of allowable expenses.

➢Marketing Plans

As shared earlier, personal entertainment costs are not permitted for a tax deduction. However, you can have leniency in corporate taxes if the expense is related to marketing purposes. This includes subscribing to magazines and journals and print advertisements, all necessary for the promotional value of your business site.

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Difference between Allowable and Non-Allowable Expenses

For some of the allowable expenses vs. non-allowable expenses features, check below:

  • Allowable expenses are those payments or charges made by your business that are eligible for tax relief. However, non-allowable expenses are those expenses that cannot be claimed for tax benefits as they are considered mainly as personal spending.
  • An example of allowable expense is the company-related purchase of tools and materials such as company vehicles. Once you buy cars, not from your company’s account, that will be taken as a part of personal expenditure.
  • For allowable expenditures, a share of corporate tax is deducted according to the company income. There are no such deductions for disallowable expenditures.

In reality, the allowable vs. non-allowable expenses segregation is not that easy. It depends on multiple factors, including- 

  • The operational industry your business serves.
  • The trading status of the company.
  • Your business-specific role is carried out within the industry.

The personal expenditure factor is subjective to the industry your firm serves. For example, any media company’s expenses on expensive cameras, studios, gadgets, etc., are allowable but become disallowable when they are related to the automobile industry. So, often, the expenses may or may not be business-related but can be manipulated accordingly.

How Flyingcolour Tax Consultant Can Help You?

The Flyingcolour tax consultant is a reliable, professional team based in Dubai that provides tailored guidance when it comes to allowable and non-allowable expendituresBesides, the consultant offers personalized advice about diverse industries. They help businesses with insights about expenses that can be claimed against corporate taxes and beyond. The overall stable financial health of your business is guaranteed by Flyingcolour’s specialist team.

To learn more about the Non-allowable expenditures for Corporate Tax, book a free consultation with one of the Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.

This article was published on 08-05-2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.

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