Are payments to overseas consultants deductible?

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.

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 Amounts withdrawn from the Business by a natural person who is a Taxable Person under paragraph (c) of Clause 3 of Article 11 of this Decree-Law or a partner in an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

Dividend income from Company B is exempt but the Interest income from the debenture is taxable. Based on the proportionate cost of the investments: • • 20% of the consultant’s fees are deductible: AED 2,000 / (AED 8,000 + AED 2,000); and 80% of the consultant’s fees are non-deductible: AED 8,000 / (AED 8,000 + AED 2,000). Expenditure in relation to a Participating Interest 7.2.1. Expenditure in relation to acquisition and disposal of a Participating Interest Expenditure incurred in relation to the acquisition, sale, transfer, or disposal of an entire Participating Interest, or part of a Participating Interest, is not tax deductible (with the exception of Interest expense).116 Instead, such costs should be capitalised as part of the cost of the Participating Interest. 117 Capitalisation of the expense is required for Corporate Tax purposes regardless of whether such expenses are capitalised in the Financial Statements. Examples of relevant expenses include, but are not limited to, professional fees, due diligence costs, litigation costs, commissions and brokerage fees, stamp duty, registration duties and other irrecoverable taxes, appraisal and valuation costs, and refinancing costs.118 7.2.2. Expenditure in relation to a failed acquisition of a Participating Interest Sometimes expenses are incurred with the intention of acquiring a Participating Interest but ultimately the acquisition is not completed. In such a case, since the Participating Interest is not acquired, the expense cannot be said to relate to a Participating Interest. Where the expense is incurred wholly and exclusively for the purposes of a Taxable Person’s Business, the expense may be deductible.119 Example 27: Expenditure in relation to a failed acquisition of shares Company A (a company incorporated and resident in the UAE) wants to invest in shares of Company F (a company incorporated and managed outside the UAE) as 116 Article 10(1) and Article 10(3) of Ministerial Decision No. 116 of 2023. 117 Article 10(4) of Ministerial Decision No. 116 of 2023. 118 Article 10(2) of Ministerial Decision No. 116 of 2023. 119 Article 28(1) of the Corporate Tax Law. Corporate Tax Guide | Exempt Income: Dividends and Participation Exemption | CTGEXI1 64