Can I claim this expense?

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 32 – Entertainment Expenditure 1. Subject to Article 28 of this Decree-Law, a Taxable Person shall be allowed to deduct 50% (fifty percent) of any entertainment, amusement, or recreation expenditure incurred during a Tax Period. 2. Clause 1 of this Article applies to any expenditure incurred for the purposes of Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 38 receiving and entertaining the Taxable Person’s customers, shareholders, suppliers or other business partners, including, but not limited to, expenditure in connection with any of the following: a. Meals. b. Accommodation. c. Transportation. d. Admission fees. e. Facilities and equipment used in connection with such entertainment, amusement or recreation. f. Such other expenditure as specified by the Minister.

which means that the full amount has been incurred solely for these purposes. If the expenditure is incurred for non-Business purposes, then it must be added back when calculating Taxable Income.168 Example 13: The importance of a Taxable Person’s purpose when incurring expenditure If an individual operating through a sole establishment carries on a Business administering an online sales platform and such individual pays for dental work for themselves, then it is likely that such expenditure will not have been incurred for the purposes of the Business. Rather, it was incurred for their own private purposes and the expenses would not be deductible for Corporate Tax purposes. Furthermore, if a company that owns an online sales platform pays for the dental work of its owner (shareholder) who is not involved in the operation of the company, then such expenditure also will not have been incurred for the purposes of the Business. The expense was for the purpose of providing a personal benefit to an owner and as such the expenses would not be deductible for Corporate Tax purposes. If expenditure is incurred partly for Business purposes and partly for some other purposes, the amount must be apportioned so that only the part relating to the derivation of Taxable Income will be allowed as a deduction. This includes any identifiable part or proportion of the expenditure incurred wholly and exclusively for Business purposes, as well as an amount that has been apportioned determined on a fair and reasonable basis.169 What is fair and reasonable will depend on the circumstances and facts of each case. In many cases, there would be more than one method of apportioning expenses which is fair and reasonable to use. The fair and reasonable approach chosen should accurately reflect the underlying activity, should not be unnecessarily burdensome and complex for the Taxable Person to determine and justify, and for the FTA to understand and review. Example 14: Apportionment of non-business expenditure Mr A is a florist. He owns a delivery van which is primarily used for collecting supplies and making deliveries to customers. However, outside of regular business hours, Mr A uses the van for personal errands, such as shopping and driving his children to school. 168 Article 28(2)(a) of the Corporate Tax Law. 169 Article 28(3) of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 62

Article 7 – Other Adjustments on Deductions 1. For the purposes of paragraph (i) of Clause 2 of Article 20 of the Corporate Tax Law, to the extent that any expenditure is determined as deductible under Chapter Nine of the Corporate Tax Law where certain conditions are met, any expenditure that does not meet these conditions shall not be deductible. 2. For the purposes of paragraph (i) of Clause 2 of Article 20 of the Corporate Tax Law, no deduction shall be allowed for depreciation, amortisation or other change related to capitalised expenditure, where such an expenditure would not have been deductible had it been an expenditure that is not capital in nature. 3. For the purposes of paragraph (i) of Clause 2 of Article 20 of the Corporate Tax Law, expenditures that are capital in nature that have not been deducted for the purpose of calculating the Taxable Income, other than those under Clause 2 of this Article, shall be deductible in the calculation of gains or losses upon the realisation of the asset or liability. 4. For the purposes of this Article, expenditures that are capital in nature shall be those treated as such under the Accounting Standards applied by the Taxable Person.