UAE Corporate Tax: How should businesses account for deductions?

UAE Corporate Tax: How should businesses account for deductions?

Another issue relates to non-deductible expenses. Any fines and penalties – otherwise claimed as an expense in the account books – should be added back to the profits to determine the taxable income. Exception applies to amounts awarded as compensation for damages or breach of contract

Such expense restriction is generally not a significant concern for most companies. The quantum of statutory penalties are generally not substantial.

The car rental industry, however, could face strong headwinds from such expense restrictions. Depending on their fleet size, rental companies regularly pay fines for traffic violations committed by their customers.

It is often claimed that the violation is committed by customers and not by the rental companies. That the rental company is only a facilitator/conduit between the customers and the authorities.

The veracity of any such claims hinges on identifying as to who is statutorily liable to pay such fines. One needs to also examine if the restriction on their deductibility is absolute or depend on the recoveries made from customers.

Product samples, gifts

A common query regarding expense deductibility relates to product samples and marketing gifts. The items could be provided to existing as well as potential customers. Except for permitted entities,