The Federal Tax Authority (FTA) has released a detailed guide on the “Determination of Taxable Income” under UAE Corporate Tax Law.

The guide explains how to determine taxable income and includes case studies on:

• Deductible vs. non-deductible expenses
• Interest expenditure
• Tax loss relief
• Unrealized gains/losses
• Exempt income
• Foreign permanent establishments

A notable clarification provided in the guide pertains to the treatment of entertainment expenditure. Entertainment is considered as hospitality incurred for customers, shareholders, suppliers, or other business partners.

Key Aspects of Entertainment Expenditure Classification:

Employee-Related Entertainment

• Expenses related to employee entertainment, such as staff parties, off-site events, away-days, or rewards for performance targets etc. are fully
  deductible, provide they are incurred wholly and exclusively for business purposes.
• If the event is private, such as a wedding of family members who happen to also be staff, the expenditure is not deductible.
• Costs for events involving employees and their families (e.g. team-building events) are deductible if they are related to the business and reasonable.

Commercial Hospitality

• When a business provides hospitality as part of its regular operations (e.g., in-flight entertainment by airlines , promotional events by hotels ) these expenses are treated as ordinary business expenditures and are fully deductible.
• Expenses for benefits provided to clients and business partners that are not commercial hospitality (e.g., complimentary hotel stays ) are subjects to the 50% deduction rule.

Incidental Expenses

• Incidental expenses, such as food or drink provided during a business meeting or complimentary refreshments in an office setting, are fully deductible as they are considered part of the business.
• Food and beverages at venues like restaurants , events if related to business , are considered entertainment and subject to the 50% deduction rule.

Marketing and Advertising

• Expenditures for marketing activities, such as advertising online promotion, attending trade shows, or direct marketing campaigns , are fully deductible if they are wholly and exclusively for business purposes.
• Whether an expenditure is considered marketing or entertainment depends on the industry and the nature of the expense. Hospitality at marketing events (e.g., meals, accommodation) is subject to the 50% rule.

By understanding these guidelines, businesses can better navigate the complexities of deducting entertainment expenses under Corporate Tax Law, ensuring compliance and optimizing their tax liabilities.

YUGA Accounting & Tax Consultancy is here to assist you in managing your taxable income and entertainment expense deductions effectively, ensuring full compliance with UAE Corporate Tax regulations.

FOR MORE INFORMATION, CONTACT US :

Phone : +971 52 1952 532 / +971 4 240 1110

Mail-Id : [email protected]

Website : www.yugaaccounting.com