Are fines and penalties deductible for Corporate Tax?

Article 33 – Non-deductible Expenditure 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 Amounts withdrawn from the Business by a natural person who is a Taxable Person under paragraph (c) of Clause 3 of Article 11 of this Decree-Law or a partner in an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 by a Taxable Person that is recoverable under Federal Decree-Law No. (8) of 2017 referred to in the preamble and what replaces it. 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. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 39 Chapter Ten – Transactions with Related Parties and Connected Persons

5.3.5 Entertainment expenditure Company F has incurred entertainment expenditure of AED 1,600,000. As per the specific rules in relation to entertainment expenditure, as noted in Section 4.5.10: (A) AED 900,000 for entertainment of company employees would be 100% deductible. (B) AED 500,000 for entertainment of business partners would be 50% deductible, i.e. AED 250,000. In addition, as noted in Section 5.3.3, AED 200,000 for entertainment for shareholders’ families is disallowed as not being incurred for the purpose of Business. Accordingly, the following expenditure is disallowed, i.e. added back, while determining Taxable Income: (A) AED 250,000 relating to entertainment expenditure for business partners. (B) AED 200,000 relating to entertainment expenditure for shareholders’ families. (see Section 5.3.3) 5.3.6 Donations, gifts As noted in Section 4.5.9, donations, grants or gifts made to a Person other than a Qualifying Public Benefit Entity are non-deductible expenditure for Corporate Tax purposes.126 Accordingly, AED 700,000 relating to donations and gifts made to Persons other than a Qualifying Public Benefit Entity are disallowed, i.e. added back, while determining Taxable Income. 5.3.7 Fines, penalties and compensation • Fines, penalties: As noted in Section 4.5.1 the deductibility of any expenditure will depend on whether it is incurred wholly and exclusively for the purposes of the Business. If the payment is for infraction/breach of any laws, rules or regulations or is imposed as punishment, then it will not be allowable for Corporate Tax purposes, for example, fines and penalties levied by a statutory body/government. It does not matter if such fines or penalties are incurred in the normal course of Business, they will be disallowed for Corporate Tax purposes. 126 Article 33(1) of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 57

Article 28 – Deductible Expenditure 1. Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred, subject to the provisions of this Decree-Law. 2. For the purposes of calculating the Taxable Income for a Tax Period, no deduction is allowed for the following: a. Expenditure not incurred for the purposes of the Taxable Person’s Business. b. Expenditure incurred in deriving Exempt Income. c. Losses not connected with or arising out of the Taxable Person’s Business. d. Such other expenditure as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. 3. If expenditure is incurred for more than one purpose, a deduction shall be allowed for: a. Any identifiable part or proportion of the expenditure incurred wholly and exclusively for the purposes of deriving Taxable Income. b. An appropriate proportion of any unidentifiable part or proportion of the Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 36 expenditure incurred for the purposes of deriving Taxable Income that has been determined on a fair and reasonable basis, having regard to the relevant facts and circumstances of the Taxable Person’s Business.