Corporate tax law has been effective since June 1, 2023. Businesses subject to corporate tax must now follow new rules and regulations. This blog covers corporate tax deductions, compliance importance, common violations, penalties, and everything else you need to know about corporate tax.
Deductions allow you to claim expenses that contributed to earning taxable income. Even if exact amounts are hard to determine, a fair portion of business-related costs can be claimed as tax deductions.
When calculating taxable income, remember that nondeductible expenses, such as those unrelated to your business, cannot be exempted.
Per the corporate tax deduction law, expenses that are directly and exclusively related to your business (excluding long-term investments) can be deducted in the same tax period they were incurred, following the Decree-Law.

General Interest Corporate Tax Deductions Limitation Rule in the UAE
The general interest deduction limitation rule allows you to deduct up to 30% of your earnings before taxes, interest, depreciation, and amortization (EBITDA). If your interest expenses exceed your earnings in a tax year, you can subtract that difference from your total earnings before considering EBITDA, thereby reducing your tax liability. This rule does not apply if certain types of income are already exempt.
According to the Federal Decree-Law, your net interest expenditure is the difference between the interest earned and interest expenses for the tax period, including any carried-forward interest from previous periods. However, if the final amount is below a threshold specified by the Minister, it will not be exempt.
Disallowed net interest expenditures can be carried forward and deducted in the next 10 tax periods, in the order they were incurred, subject to conditions in the decree law.
Exemptions to these deduction rules apply to insurance providers, banks, individuals conducting business activities within the country, and others specified by the Minister.
Specific Interest Deduction Limitation Rule
Interest borrowed from a related party may not always be deductible under certain conditions:
– Interest on loans taken to pay dividends or distribute profits to a related party cannot be deducted.
– Interest expenses on loans used to reduce or return share capital to a related party are not deductible.
– Interest on loans borrowed from a family member to acquire ownership of part of a business is not eligible for deduction.
However, if you can demonstrate that the loan was not intended for claiming deductions, or if the lender has a significant corporate tax payment history, these interest deductions may still be applicable.
Non-deductible Expenditure
You can deduct 50% of business-related entertainment expenses, including food, travel, accommodation, and other costs such as admission fees or equipment related to the entertainment.
While many expenses can be deducted under Corporate Tax, some are explicitly non-deductible. Here are a few:
– Donations or gifts to Public Benefit Entities that don’t qualify under corporate tax rules.
– Fines and penalties, unless they are paid as compensation for damages or contract breaches.
– Dividends, profit distributions, and any illegal payments like bribes.
Navigating Corporate Tax:
Understanding Corporate Tax Law is crucial for smooth compliance. The new law requires companies to accurately review their income and expenses.
Key elements of the new Corporate Tax Law include:
– General and specific interest deductions
– Entertainment expense deductions
– Nondeductible expenditures
Knowing the allowable deductions and their limits is essential for a stress-free tax season.
While it may seem daunting to grasp all these regulations at once, it’s beneficial to streamline your tax strategies. This helps avoid unexpected violations and penalties, ensuring your business remains compliant with tax laws.
Why choose Unicorn Global Solutions
Corporate Tax has been designed to promote investment and maintain openness to match global standards, hence providing a stable society in which enterprises may contribute and add value to the economy’s growth. Text us on WhatsApp or call us today for any corporate tax service required. Our experienced and professional team can assist you with all services you need. Contact us now.